USD/JPY holds below 149.50 ahead of US Retail Sales data

USD/JPY edges lower to near 149.40 in Thursday’s Asian session.
The rising bets that the Fed will gradually lower interest rates in the remainder of the year might support the USD.
Investors will take more cues from Japan’s September National CPI inflation data on Friday.

Lallalit Srijandorn FXStreet

The USD/JPY pair weakens to around 149.40 despite the stronger US Dollar (USD) during the Asian trading hours on Thursday. The US Retail Sales data will take center stage later on Thursday, which is estimated to rise to 0.3% in September from 0.1% in the previous reading.

The US economic data showed a resilient economy and inflation in September rose slightly more than expected, prompting traders to trim bets on further large rate cuts from the US Federal Reserve (Fed). This, in turn, could lift the Greenback against the Japanese Yen (JPY). Traders have assigned a nearly 100% odds of a 25 basis points (bps) rate cut in November, with just a 0.2% possibility of a pause by the Fed, keeping the fed funds rate at the 4.75%-5.0% target range, according to LSEG calculations.

Nonetheless, persistent geopolitical risks and US election uncertainty could boost the safe-haven flows, benefitting the JPY. Israel’s plan to respond to this month’s Iranian attack is ready, per CNN. US officials expect it to happen before the US presidential election. Prime Minister Benjamin Netanyahu separately stated Israel is opposed to a “unilateral ceasefire” in its war with Iran-backed Hezbollah in Lebanon.

Data released by the Ministry of Finance showed on Thursday that Japan’s exports fell 1.7% year-over-year in September from a revised rate of 5.5% in August. Meanwhile, imports grew 2.1% year-over-year in September, compared to 2.3% the month prior. Both figures came in weaker than the expectations.

Investors await the nation’s September National Consumer Price Index (CPI) data on Friday for fresh impetus. The National CPI ex Fresh Food is expected to ease to 2.3% in September from 2.8% in August. Meanwhile, the Bank of Japan’s (BOJ) challenge in proceeding with policy normalization amid uncertainty over the new political leadership's preference for monetary settings might cap the upside for the JPY in the near term.

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 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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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