- USD/JPY loses ground to near 152.95 in Tuesday’s early Asian session, down 0.22% on the day.
- Political and monetary policy uncertainty in Japan weighs on the Japanese Yen.
- The prospect of less aggressive policy easing by the Fed might help limit the USD’s losses.
The USD/JPY pair loses ground to around 152.95 during the early Asian session on Tuesday. The pair edges lower as the US Dollar (USD) retreats from a nearly three-month high in the previous session. However, the downside for the pair might be limited amid the uncertainty surrounding the next government’s makeup and the Bank of Japan's (BoJ) rate hike plan.
An election loss by Japan's ruling coalition raises political and monetary policy uncertainty and might exert some selling pressure on the Japanese Yen (JPY). “The ruling LDP and its coalition partner lost their majority in the lower house, raising concerns about the shape and policy direction of the next government. Markets have also trimmed BoJ tightening expectations marginally (helping boost local stocks),” noted Scotiabank’s Chief FX Strategist Shaun Osborne.
The BoJ interest rate decision will take center stage on Thursday. Nearly 86% of economists polled by Reuters anticipate the Japanese central bank to leave its rates unchanged at its October meeting on Thursday.
Elsewhere, data released by the Statistics Bureau of Japan showed on Tuesday that the country’s Unemployment Rate ticked lower to 2.4% in September, down from the previous reading and the market consensus of 2.5%.
The bets for a less aggressive policy easing by the Federal Reserve (Fed) could provide some support to the Greenback in the near term. According to the CME FedWatch tool, traders have priced in a nearly 96.8% chance of a usual size rate cut of 25 basis points (bps) in November and expect a similar move in the December meeting.
Nonetheless, traders will keep an eye on the advanced US Gross Domestic Product (GDP) for the third quarter, the Personal Consumption Expenditure Price Index (PCE) for September, the ISM Manufacturing PMI, and the Nonfarm Payrolls (NFP) data for October, which will be released this week for fresh impetus. Any signs of weakness in the US economy or the labor market could undermine the USD against the JPY.
Japanese Yen FAQs
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.
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 BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, 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 supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
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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