- USD/JPY backslid 1.5% after the BoJ snuck in a quarter-point rate hike.
- The BoJ has chalked in its second rate hike since 2007.
- The US Fed’s latest rate call laid out the stipulations needed for a September cut.
USD/JPY tumbled 1.5% on Wednesday, extending a recent bearish downturn after the Bank of Japan (BoJ) delivered a surprise rate hike in the early hours of the Wednesday market session. It’s the second rate hike from the BoJ since 2007, and Japanese interest rates are above zero for the first time since September of 2010.
The Federal Reserve’s (Fed) latest rate call held rates steady for the July meeting as markets broadly expected, with Fed Chairman Jerome Powell highlighting what needs to happen in US data before the US central bank will begin delivering rate cuts.
Daily digest market movers: USD/JPY churns below 151.00 as investors weigh rate cut hopes
- The BoJ surprised markets with a second quarter-point rate hike for the year, lifting interest rates above zero to 0.25%.
- The Fed’s July rate call held steady at 5.25% - 5.5%.
- Read more: Jerome Powell comments on policy outlook after keeping policy settings unchanged
- Rate markets have fully pinned September rate cut forecasts to the ceiling, 100% odds of at least a quarter-point rate trim on September 18.
- Despite the rate hike from the BoJ, the Japanese central bank also trimmed its asset purchasing program less than expected, limiting upside potential from the rate hike.
Technical analysis: USD/JPY continues to ease for now
USD/JPY tumbled back to the 150.00 major price handle for the first time since March, shedding 1.5% on Wednesday and diving below the 200-day Exponential Moving Average (EMA) after a steady drift into the bullish side since January. The pair is down 7.6% peak-to-trough after hitting multi-decade highs earlier this month, driven lower by a series of suspected “Yenterventions” from the BoJ and the Japanese Ministry of Finance.
Markets will be waiting to sniff out the lay of the land moving forward, but it won’t take much buying pressure for markets to push USD/JPY back into the north side of the 200-day EMA at 152.40. A technical floor is priced in near 147.50 at March’s swing low, with 2024’s early low bids just north of 140.00 waiting further below.
USD/JPY daily chart
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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