- USD/JPY remains under selling pressure around 145.00 in Monday’s Asian session, down 1.05% on the day.
- A weak US July employment report on Friday weighs on the US Dollar.
- The rising Middle East geopolitical risks and the unwinding of carry trades support the JPY.
The USD/JPY pair attracts some sellers near 145.20 during the Asian trading hours on Monday. The weaker US Dollar (USD) after the US employment data drags the pair lower. Market players will monitor the US ISM Services Purchasing Managers Index (PMI) on Monday for fresh impetus, which is expected to improve to 51.0 in July from 48.8 in June.
The Greenback remains under pressure as the US labour market continues to deteriorate in July. The Nonfarm Payrolls (NFP) showed 114K jobs were added in the US economy in July from the downwardly revised 179,000 in June, worse than the market’s expectation for an increase of 175K. The Unemployment Rate rose to 4.3%, the highest rate since late 2021 and above the market consensus of 4.1%. The Average Hourly Earnings rose 0.2% month-over-month in the same reported period, below the market consensus of 0.3%.
On the other hand, mounting geopolitical tensions in the Middle East could boost the safe-haven currency like the Japanese Yen (JPY). US Secretary of State Tony Blinken told his counterparts from the G7 countries on Sunday that an attack by Iran and Hezbollah against Israel could start as early as Monday, three sources briefed on the call tell Axios.
Apart from this, the expectation that the Bank of Japan (BoJ) policymakers might tighten monetary policy further and the unwinding of carry trades might underpin the JPY in the near term. NBC FX analysts Stéfane Marion and Kyle Dahms noted, “The factors underpinning the current bout of strength were twofold, firstly the unwinding of carry trades brought an initial surge which was then compounded by a surprise decision from the Bank of Japan to raise rates to their highest level in 15 years. In addition, the central bank showed a path towards slowing asset purchases, a sizeable shift in stance from previously easy money.”
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 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.
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.
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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