USD/JPY slumps below 161.00, US NFP data looms
|- USD/JPY faces some selling pressure near 160.65 in Friday’s Asian session.
- The verbal intervention from Japanese authorities provides some support to the JPY.
- Rising odds of Fed rate cuts weigh on the US Dollar, while Fed’s cautious tone might cap the USD’s downside.
The USD/JPY pair atrracts some sellers around 160.65 during the Asian session on Friday. The sell-off in the pair is driven by verbal intervention from Japanese authorities and softer US Dollar (USD). The US June Nonfarm Payrolls (NFP) will be in the spotlight on Friday, which is expected to show 190K jobs added in June.
Japan’s Finance Minister Shunichi Suzuki said on Friday that the weak Japanese Yen (JPY) is pushing up import costs and having an impact on prices. Suzuki further stated that he“will closely monitor stock and forex markets with vigilance.” This verbal intervention lifts the JPY and acts as a headwind for USD/JPY.
However, any significant appreciation of JPY might be limited amid a dovish stance by the Bank of Japan (BoJ). The Japanese central bank remains reluctant to provide a detailed plan for the reduction of bond purchases and further rate hikes.
On the USD’s front, the rising odds that the US Fed will start easing the cycle in September drags the Greenback to over a three-week low around the 105.00 support level. According to the CME FedWatch Tool, financial markets are now pricing in nearly 70% odds for a 25 basis points (bps) Fed rate cut in September, up from 58.2% last Friday, according to the CME FedWatch Tool.
On the other hand, the cautious stance from the Fed officials and the June FOMC policy meeting might boost the USD. Fed officials lacked the confidence they needed to cut the interest rate, while several policymakers stated that it’s necessary to hike again if inflation were to rebound.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, 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 stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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