- The Japanese Yen draws support from fears about a possible government intervention.
- The BoJ rate-hike uncertainty and the risk-on environment should cap the safe-haven JPY.
- A bullish USD might further act as a tailwind for USD/JPY ahead of the FOMC decision.
The Japanese Yen (JPY) extends its sideways consolidative price move against its American counterpart and remains close to the lowest level since July 30 touched on Wednesday. Doubts over the Bank of Japan's (BoJ) ability to hike interest rates further, along with the prevalent risk-on environment, continue to undermine the safe-haven JPY. Adding to this, elevated US Treasury bond yields, bolstered by Republican Donald Trump’s comeback as the 47th President of the United States (US), turn out to be another factor acting as a headwind for the lower-yielding JPY.
Meanwhile, the overnight slump prompted verbal intervention from Japanese authorities and turns out to be a key factor that helps limit the downside for the JPY. The US Dollar (USD), on the other hand, ticks lower amid some profit-taking following the previous day's blowout rally to a four-month high. That said, hopes of higher growth and inflation under Trump's presidency support prospects for slower rate cuts by the Federal Reserve (Fed). This could act as a tailwind for the buck and the USD/JPY pair ahead of the Federal Open Market Committee (FOMC) decision later today.
Daily Digest Market Movers: Japanese Yen struggles to lure buyers despite intervention fears, modest USD downtick
- Japan's Chief Cabinet Secretary, Yoshimasa Hayashi, reiterated on Wednesday that the government intended to closely watch moves in the FX market, including speculative moves, with a higher sense of urgency.
- Adding to this, Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, said on Thursday that the government is ready to take appropriate actions against excess FX moves if necessary.
- The minutes of the September Bank of Japan meeting showed that the central bank plans gradual policy rate increases, though it remains cautious about overseas economic uncertainties, especially from the US.
- Investors, however, seem convinced that the political uncertainty in Japan could make it difficult for the BoJ to tighten monetary policy further, which, along with the risk-on mood, undermines the Japanese Yen.
- The US Dollar recorded its biggest one-day gain since September 2022, touching the highest level since July amid hopes that Donald Trump's policies would push up inflation and reduce the pace of interest rate cuts.
- Furthermore, the return of the so-called Trump trade triggered a sell-off in the US fixed-income market, pushing the yield on the benchmark 10-year US government bond to 4.45%, or its highest level since July.
- This resulted in the further widening of the US-Japan rate differential, which might continue to weigh on the lower-yielding JPY and suggests that the path of least resistance for the USD/JPY pair is to the upside.
Technical Outlook: USD/JPY bulls have the upper hand after Wednesday's breakout above the 153.80-153.85 supply zone
From a technical perspective, the overnight breakout above the 153.80-153.85 supply zone and a subsequent strength beyond the 154.00 mark was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone. This further validates the near-term positive outlook for the USD/JPY pair and supports prospects for a move towards reclaiming the 155.00 psychological mark. The momentum could extend further towards the next relevant hurdle near the 155.45-155.50 region.
On the flip side, the 154.00 round figure might now offer immediate support to the USD/JPY pair. Some follow-through selling below the 153.85-153.80 resistance-turned-support could drag spot prices to the 153.25 region en route to the 153.00 mark, which is closely followed by the 152.75 support. Any further corrective decline might still be seen as a buying opportunity and is more likely to remain limited near the 152.00 round-figure mark.
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 embarked in an ultra-loose monetary policy in 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. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD holds recovery above 0.6600 after Chinese trade data
AUD/USD is holding its recovery above 0.6600 in the Asian session on Thursday. The pair capitalizes on a modest US Dollar pullback and strong Chinese trade surplus data amid RBA Governor Bullock's prudent remarks and improving risk sentiment. Fed verdict is awaited.
USD/JPY stays defensive below 154.50 amid Japanese verbal warnings
USD/JPY is extending its retreat below 154.50 early Thursday, following a massive surge on Wednesday. A US Dollar pullback and speculations that Japanese authorities might intervene to prop up the Yen undermine the pair. The focus now shifts to the Fed decision for further impetus.
Gold price loses ground due to solid US Dollar following Trump’s victory
Gold price extends its losses for the second successive session on Thursday. The dollar-denominated precious metal faces downward pressure from a stronger US Dollar following the victory of former President Donald Trump in the US election.
XRP eyes $0.6640 as Ripple CEO tips Trump to fire Gensler on first day in office
Ripple's XRP is up over 5% on Wednesday and could extend its rally to $0.6640 as the Securities & Exchange Commission may not file its appeal brief against the company due to Donald Trump's presidential election victory.
Trump wins: Tax cuts come with a cost
Donald Trump’s victory will ensure a lower tax environment that should boost sentiment and spending in the near term. However, promised tariffs, immigration controls and higher borrowing costs will increasingly become headwinds through his presidential term.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.