Japanese Yen trims gains ahead of Fed interest rate decision
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- The Japanese Yen holds gains due to ongoing hawkish sentiment surrounding the BoJ interest rate outlook.
- Japan's Merchandise Trade Balance Total recorded a trade deficit of ¥695.3 billion in August, below the expected ¥1,380.0 billion shortfall.
- The US Dollar receives downward pressure from rising odds of a 50 basis point cut by the Fed on Wednesday.
The Japanese Yen (JPY) maintains its position after trimming intraday gains due to rising expectations of a bumper Federal Reserve (Fed) rate cut on Wednesday. Traders will shift their focus on the BoJ policy decision on Friday, with expectations of keeping rates unchanged while leaving the possibility open for further rate hikes.
Japan’s Merchandise Trade Balance Total recorded a larger trade deficit of ¥695.30 billion in August, up from ¥628.70 billion the previous month, but well below market expectations of a ¥1,380.0 billion shortfall. Exports increased by 5.6% year-over-year, marking the ninth consecutive month of growth, but fell short of the anticipated 10.0%. Imports rose by just 2.3%, the slowest pace in five months, significantly underperforming the projected 13.4% rise.
The US Dollar (USD) remains under pressure amid rising expectations that the Federal Open Market Committee (FOMC) may announce a substantial 50 basis point rate cut on Wednesday. The CME FedWatch Tool indicates that markets are assigning a 33.0% probability to a 25-basis-point rate cut, while the likelihood of a 50-basis-point cut has risen to 67.0%, up from 62.0% just the previous day.
Daily Digest Market Movers: Japanese Yen appreciates due to the dovish Fed policy outlook
- JP Morgan CEO Jamie Dimon stated on Tuesday that whether the Federal Reserve cuts interest rates by 25 or 50 basis points, the impact will be “not earth-shattering.” Dimon emphasized, “They need to do it,” but noted that such moves are relatively minor in the grand scheme of things, as "there's a real economy" operating beneath the Fed’s rate changes, according to Bloomberg.
- US Retail Sales rose by 0.1% month-over-month in August, following a revised 1.1% increase in July, surpassing expectations of a 0.2% decline and indicating resilient consumer spending. Meanwhile, the Retail Sales Control Group increased by 0.3%, slightly below the previous month's 0.4% rise.
- Japanese Finance Minister Shunichi Suzuki stated on Tuesday that rapid foreign exchange (FX) fluctuations are undesirable. Suzuki emphasized that officials will closely monitor how FX movements affect the Japanese economy and people's livelihoods. The government will continue to assess the impact of a stronger Japanese Yen and respond accordingly, according to Reuters.
- Rabobank economists Jane Foley and Molly Schwartz highlighted on Monday that JPY net long positions were at their highest level since October 2016. While there is minimal expectation for a rate hike by the Bank of Japan at its policy meeting on September 20, traders will be closely watching for any hints that October could potentially be a more active meeting.
- Commerzbank FX analyst Volkmar Baur anticipated that the Bank of Japan will remain on the sidelines this week. Baur noted that the Federal Reserve's actions are likely to have a greater impact on the USD/JPY pair, suggesting that the JPY could have a strong chance of falling below 140.00 per USD even without a rate hike from the BoJ.
- On Friday, Fitch Ratings' latest report on the Bank of Japan's policy outlook suggests that the BoJ might raise rates to 0.5% by the end of 2024, 0.75% in 2025, and 1.0% by the end of 2026.
- The University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, exceeding the market expectations of 68.0 reading and marking a four-month high. This increase reflects a gradual improvement in consumers' outlook on the US economy after months of declining economic expectations.
- The hawkish BoJ policymaker Naoki Tamura stated on Thursday that the central bank should raise interest rates to at least 1% as early as the second half of the next fiscal year. This comment reinforces the BoJ's commitment to ongoing monetary tightening.
Technical Analysis: USD/JPY falls to near 141.50; next support at 14-month lows
USD/JPY trades around 141.40 on Wednesday. Analysis of the daily chart shows that the pair is trending downward within a descending channel, confirming a bearish outlook. The 14-day Relative Strength Index (RSI), a momentum indicator, has risen above the 30 level, suggesting the potential for an upward correction in the near future.
In terms of support, the USD/JPY pair may encounter immediate support at 139.58, the lowest level since June 2023. This is followed by the lower boundary of the descending channel around 138.20.
On the upside, the USD/JPY pair may first face resistance at the nine-day EMA near the 142.14 level, followed by the 21-day EMA around 143.72. A break above these EMAs could weaken the bearish sentiment, potentially driving the pair to test the upper boundary of the descending channel at 145.10.
USD/JPY: Daily Chart
Japanese Yen PRICE Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.24% | -0.52% | -0.07% | -0.29% | -0.49% | -0.34% | |
| EUR | 0.12% | -0.14% | -0.41% | 0.04% | -0.16% | -0.39% | -0.21% | |
| GBP | 0.24% | 0.14% | -0.28% | 0.17% | -0.02% | -0.26% | -0.06% | |
| JPY | 0.52% | 0.41% | 0.28% | 0.44% | 0.24% | 0.04% | 0.23% | |
| CAD | 0.07% | -0.04% | -0.17% | -0.44% | -0.21% | -0.43% | -0.23% | |
| AUD | 0.29% | 0.16% | 0.02% | -0.24% | 0.21% | -0.20% | -0.04% | |
| NZD | 0.49% | 0.39% | 0.26% | -0.04% | 0.43% | 0.20% | 0.18% | |
| CHF | 0.34% | 0.21% | 0.06% | -0.23% | 0.23% | 0.04% | -0.18% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.
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