Japanese Yen remains on the back foot against USD; lifts USD/JPY beyond 156.00 mark

The Japanese Yen continues losing ground amid the BoJ rate-hike uncertainty.
The bullish USD contributes to the USD/JPY pair’s move-up to a multi-month top.
The JPY bears shrug off the possibility of an intervention by Japanese authorities.

The Japanese Yen (JPY) selling bias remains unabated during the Asian session on Thursday, which, along with the bullish US Dollar (USD), lifts the USD/JPY pair beyond the 156.00 mark for the first time since July 23. The growing market conviction that Japan's political landscape will make it difficult for the Bank of Japan (BoJ) to tighten its monetary policy further continues to undermine the JPY. Furthermore, concerns over the impact of potential US President-elect Donald Trump's trade tariffs on the Japanese economy turn out to be another factor weighing on the JPY.

Meanwhile, expectations that Trump's expansionary policies could boost inflation and force the Federal Reserve (Fed) to pause its easing cycle keep the US Treasury bond yields elevated near a multi-month top. This, in turn, lifts the USD to a fresh year-to-date (YTD) peak and further contributes to driving flows away from the lower-yielding JPY. Traders now look to the US Initial Jobless Claims and the US Producer Price Index (PPI) for a fresh impetus amid fears that Japanese authorities might intervene in the markets to prop up the domestic currency.

Japanese Yen continues losing ground and hits fresh multi-month low against USD

A rise in Japan's wholesale inflation in October complicates the Bank of Japan's (BoJ) decision regarding the timing of a potential interest rate hike amid mounting domestic economic concerns.
The Japanese government is reportedly making arrangements to compile a supplementary budget to fund a stimulus package to help low-income households and offset rising prices.
Masato Kanda, now a special advisor to Japan's Prime Minister Shigeru Ishiba, said that authorities will act appropriately against excess movements in the FX market.
The US Bureau of Labor Statistics reported on Wednesday that the headline US Consumer Price Index (CPI) rose by 0.2% in October and by 2.6% over the last twelve months.
Meanwhile, the core CPI — which excludes the more volatile food and energy categories — recorded an increase of 3.3% as compared to the same time period last year.
The data did not change expectations that the US Federal Reserve would deliver a third interest rate cut in December against the backdrop of a softening labor market.
The continuation of the so-called Trump trade keeps the US Treasury bond yields elevated near a four-month peak and lifts the US Dollar to a fresh year-to-date high.
Traders now look forward to the release of the usual US Weekly Initial Jobless Claims data and the US Producer Price Index (PPI) for short-term opportunities.
The focus will then shift to Fed Chair Jerome Powell's speech, which should influence the USD/JPY pair ahead of the Prelim Q3 GDP print from Japan on Friday.

USD/JPY move beyond the 156.00 mark set the stage for additional near-term gains

From a technical perspective, the recent breakout through the 61.8% Fibonacci retracement level of the July-September decline and the subsequent close above the 155.00 psychological mark on Wednesday favor bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair remains to the upside. Hence, some follow-through strength beyond the 156.00 mark, towards testing the next relevant hurdle near the 156.55-156.60 area, looks like a distinct possibility. The upward trajectory could extend further towards the 157.00 round figure en route to the 157.30-157.35 supply zone.

On the flip side, the Asian session low, around the 155.35-155.30 region, now seems to protect the immediate downside ahead of the 155.00 mark. A sustained break below the latter might prompt some technical selling and drag the USD/JPY pair to the 154.55-154.50 intermediate support en route to the 154.00 round figure and the 153.80 support. This is followed by support near the 153.45 region, which if broken decisively might shift the near-term bias in favor of bearish traders.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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