- The Japanese Yen fails to capitalize on the hawkish BoJ minutes-led intraday uptick.
- The BoJ rate-hike uncertainty and the risk-on impulse weigh heavily on the JPY.
- The US election results trigger a sharp rise in the US bond yields and the USD.
The Japanese Yen (JPY) recovers a part of heavy intraday losses against its American counterpart, dragging the USD/JPY pair to mid-153.00s heading into the European session on Wednesday. The JPY bears turn cautious amid fears that Japanese authorities could intervene in the markets to prop up the domestic currency. Apart from this, the hawkish Bank of Japan (BoJ) meeting minutes, signaling that the central bank will continue to hike interest rates if economic and price forecasts meet, offer some support to the JPY.
Meanwhile, a modest pullback in the US Treasury bond yields prompts some US Dollar (USD) profit-taking following a sharp surge to the highest level since early July and turns out to be another factor that benefits the lower-yielding JPY. That said, bets that Japan's political landscape could make it difficult for the BoJ to hike interest rates further, along with the risk-on impulse, might cap the safe-haven JPY. Furthermore, the odds of a victory for Republican Donald Trump favors the USD bulls and should limit losses for the USD/JPY pair.
Daily Digest Market Movers: Japanese Yen might struggle to capitalize on its modest recovery against bullish USD
- The minutes of the September Bank of Japan policy meeting showed that the central bank plans gradual policy rate increases, though it remains cautious about overseas economic uncertainties, especially from the US.
- This comes on top of BoJ Governor Kazuo Ueda's hawkish remarks last week and keeps the door open for additional rate hikes, which, in turn, provides a modest lift to the Japanese Yen during the Asian session.
- The initial market reaction, however, turns out to be short-lived and fades rather quickly amid doubts over the BoJ's ability to tighten its monetary policy further in the wake of the political uncertainty in Japan.
- The US Dollar rallies across the board after exit polls indicate an early lead in key swing states for the Republican nominee Donald Trump, triggering a sharp surge of nearly 250 pips for the USD/JPY pair.
- Rising odds of Trump winning the election fuel speculations about the launch of potentially inflation-generating tariffs, which, along with deficit-spending concerns, push the US Treasury bond yields sharply higher.
- The yield on the benchmark 10-year US government bond spikes to its highest level since July, contributing to the strong bid tone surrounding the USD and driving flows away from the lower-yielding JPY.
Technical Outlook: USD/JPY needs to find acceptance for bulls to regain near-term control and extend the momentum
From a technical perspective, strength beyond the 153.85-153.90 region and the 154.00 mark could be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding in the positive territory, spot prices might now climb to the next relevant hurdle near the 154.60-154.70 area before aiming to reclaim the 155.00 psychological mark.
On the flip side, the 152.30 area now seems to protect the immediate downside ahead of the 152.00 mark and the Asian session low, around the 151.30-151.25 region. This is followed by the 151.00 round figure, below which the USD/JPY pair could slide towards the 100-day Simple Moving Average (SMA) resistance breakpoint, now turned support, around the 150.25 region. Some follow-through selling, leading to a break below the 150.00 psychological mark, will shift the near-term bias in favor of bearish traders and pave the way for deeper losses.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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.