Japanese Yen holds Friday gains, USD/JPY moves toward 149.60

Japanese Yen rebounds after Tokyo inflation data increases bets the Bank of Japan (BoJ) will tighten policy.
The US Dollar loses traction after US inflation comes out in line with estimates.
The USD/JPY remains in uptrend but price falling to key make-or-break trendline for short-term chart.

The Japanese Yen (JPY) has climbed against the US Dollar for most of Friday and looks likely to keep it that way into the weekly close. Registering a daily low of 149.4560, the USD/JPY has risen toward 149.60 in the last hour of the session.

The Yen finally boxed its way out of its corner on Friday, strengthening against most counterparts, after the release of Tokyo inflation data spurred bets the Bank of Japan (BoJ) will raise interest rates – broadly seen as positive for the currency.

The USD/JPY exchange rate, which measures the number of Yen that can be bought with a single US Dollar (USD), fell back below the key 150 level on Friday after briefly flirting with a breakout higher. The level is seen by many as subject to intervention by the Japanese Ministry of Finance (MoF), after it intervened when the pair hit 151.94 last October. Whether the MoF intervened to support the Yen this time around is subject to speculation.

From a technical perspective, despite Friday’s long decline, USD/JPY remains in an uptrend, on a short, medium and long-term basis. Since “the trend is your friend” according to the old adage, this suggests more upside is probable despite the dip.

Daily digest market movers: Japanese Yen strengthens after Tokyo data

The Japanese Yen rises at the end of the week after Tokyo inflation data for October – widely seen as a leading indicator for Japan-wide inflation – came out higher than experts had expected.
Tokyo CPI ex Fresh Food came out at 2.7%, beating expectations of 2.5% and the previous year’s 2.5%.
Broad inflation in Tokyo rose 3.3% compared to only 2.8% in October of last year.
Tokyo CPI ex Food, Energy came out at 3.7% versus 3.8% a year ago.
The higher inflation raised expectations for the Bank of Japan (BoJ) raising interest rates, which would be supportive for JPY.
The Federal Reserve’s (Fed) preferred inflation gauge, Core Personal Consumption Expenditures - Price Index (data for September), showed inflation in line with estimates when it was released on Friday.
Core PCE rose 0.3% in the month of September as expected but higher than the previous month’s 0.1%. It rose 3.7% on a YoY basis, also as expected, and below the previous 3.8% figure.
The yield on the 10-year Japanese Government Bond (JGB) slipped to 0.876% on Friday, while the US 10-year Treasury yield also slid to 4.869%.
The fall in US yields (-0.05%), however, was greater than that of their Japanese counterparts (-0.01%), partly explaining why the pair fell.
USD/JPY is widely seen as reflecting the yield differential between the two countries’ bonds.
This is due to the ‘carry trade’ in which investors borrow in a currency with low interest rates such as the Yen and park the money in a currency with higher interest rates such as the US Dollar, making a profit on the difference as long as the funding currency – in this case the Yen – does not appreciate.

Japanese Yen technical analysis: Decline reaches key trendline

USD/JPY falls back below the 150 key psychological level on Friday. Despite the weakness the pair has not fallen sufficiently to change the overall bullish trend – not even on the short-term charts.

The uptrend is, therefore, still likely to resume. The next major target is at the 152.00 highs achieved in October 2022.

The pair has completed an ascending triangle on the daily chart and broken above the 150.16 high of October 3, confirming a breakout. The triangle’s technical target is at around 152.

US Dollar vs Japanese Yen: Daily Chart

A re-break above Thursday’s highs of 150.80 would provide fresh confirmation of the continued advance.

The pair is approaching a key trendline on the short-term charts at around 149.50, however, and a decisive break below the line would probably flip the trend bearish on that time frame.

Such a move would probably precipitate a decline to the 148.70s initially.

A decisive break would be characterized by a long red bearish candle that broke cleanly through the trendline and closed close to its lows, or three red candles in a row that broke cleanly through the trendline with the final candle closing near its lows.

Triangles are sometimes the penultimate formations in a trend, suggesting the chance the current uptrend may be getting near its culmination point.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

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.

How does broader risk sentiment impact 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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