- The Japanese Yen ticks lower against the US Dollar for the second straight day on Monday.
- The prevalent risk-on environment is seen as a key factor undermining the safe-haven JPY.
- The divergent Fed-BoJ policy expectations act as a headwind for USD/JPY and cap gains.
- Traders also seem reluctant to place aggressive bets ahead of the BoJ decision on Tuesday.
The Japanese Yen (JPY) kicks off the new week on a weaker note and remains on the defensive against the US Dollar (USD) through the early part of the European session. This marks the second straight day of a negative move and drags the JPY away from its highest level since late July touched last week. Against the backdrop of the Federal Reserve's (Fed) dovish pivot last week, the optimistic outlook from China's Central Finance Office boosts investors' confidence. This, in turn, is seen as a key factor undermining the safe-haven JPY and acts as a tailwind for the USD/JPY pair.
Spot prices, however, struggle to capitalize on the move and remain below mid-142.00s. A duo of Fed officials on Friday tried to temper speculation about early interest rate cuts. The markets, however, seem convinced that the US central bank will begin easing its policy by the first half of 2024. This, in turn, keeps a lid on the USD recovery from over a four-month trough touched on Friday. Apart from this, firming expectations for an imminent shift in the Bank of Japan's (BoJ) policy stance early next year further contribute to capping the upside for the USD/JPY pair.
Traders also seem reluctant to place aggressive directional bets and prefer to wait for the highly-anticipated BoJ monetary policy decision, scheduled to be announced during the Asian session on Tuesday. This, in turn, warrants some caution before confirming that the USD/JPY pair has formed a near-term bottom around the 141.00 mark. In the run-up to the key central bank event risk, traders on Monday will take cues from the broader risk sentiment and the USD price dynamics in the absence of any relevant macroeconomic releases from Japan or the US.
Daily Digest Market Movers: Japanese Yen remains on the defensive against USD, lacks follow-through
- The prevalent risk-on environment is seen undermining the safe-haven Japanese Yen amid a modest US Dollar recovery from over a four-month low touched on Friday.
- State media Xinhua, citing a government readout, reported that China's economy is expected to see more favourable conditions and more opportunities than challenges in 2024.
- New York Fed President John Williams, in an interview with CNBC, said that we aren't really talking about rate cuts right now and it's premature to speculate about them.
- William added that the data can move in surprising ways and the central bank needs to be ready to tighten policy further if the progress on inflation were to stall or reverse.
- Separately, Atlanta Fed President Raphael Bostic said that rate cuts were not an imminent thing and that the first cuts could come sometime in the third quarter of 2024.
- North Korea fired at least one unidentified type of ballistic missile on Monday, just hours after a separate launch of a short-range missile late Sunday night.
- The flash PMI data released on Friday showed that German business activity deteriorated in December, increasing the risk of a recession in Europe's biggest economy.
- The S&P Global Composite PMI edged higher to 51.0 from 50.7, suggesting that the business activity in the US private sector continues to expand at a modest pace in early December.
- The USD/JPY pair, meanwhile, struggles to move back above mid-142.00s amid rising bets that the Bank of Japan may exit its negative rate policy early next year.
Technical Analysis: USD/JPY continues with its struggle to make it through 200-day SMA barrier
From a technical perspective, last week's breakdown and close below the very important 200-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. Furthermore, the USD/JPY pair's inability to move back above the said support-turned-resistance, currently around the 142.55 region, validates the negative outlook. That said, the Relative Strength Index (RSI) on the daily chart remains closer to oversold territory and makes it prudent to wait for some near-term consolidation or a modest bounce before the next leg down.
In the meantime, any further move up is likely to attract fresh sellers near the 142.75-142.80 region and remain capped near the 143.00 round figure. That said, some follow-through buying could trigger a short-covering rally and allow the USD/JPY pair to reclaim the 144.00 mark. On the flip side, the 142.00 round figure now seems to protect the immediate downside ahead of the 141.40-141.35 region, below which spot prices could retest sub-141.00 levels, or a multi-month low touched last Thursday. The subsequent downfall has the potential to drag the pair further towards the 140.00 psychological mark.
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 Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.14% | -0.17% | -0.03% | -0.24% | -0.09% | -0.47% | -0.12% | |
| EUR | 0.14% | -0.03% | 0.13% | -0.10% | 0.06% | -0.32% | 0.03% | |
| GBP | 0.18% | 0.03% | 0.15% | -0.06% | 0.09% | -0.29% | 0.06% | |
| CAD | 0.03% | -0.12% | -0.15% | -0.21% | -0.06% | -0.45% | -0.09% | |
| AUD | 0.24% | 0.10% | 0.07% | 0.22% | 0.15% | -0.23% | 0.12% | |
| JPY | 0.08% | -0.06% | -0.08% | 0.06% | -0.16% | -0.39% | -0.04% | |
| NZD | 0.47% | 0.32% | 0.29% | 0.45% | 0.23% | 0.38% | 0.35% | |
| CHF | 0.11% | -0.04% | -0.07% | 0.09% | -0.14% | 0.02% | -0.36% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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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