USD/JPY regains lost ground, approaching 151.00 on broad-based Dollar strength

The Dollar ticks up with investors bracing for the US NFP report.
US employment data is expected to confirm expectations that the Fed will cut rates by 25 basis points in December.
Monetary divergence between the BoJ and the Fed has been buoying the yen over the last weeks.

The US Dollar is appreciating against its main peers on Friday, with investors closing Dollar lows ahead of the release of November’s Nonfarm Payrolls report.

The USD/JPY has bounced from the 149.75 area to retrace Thursday’s losses and return to the upper range of the 150.00s. The Broader trrend remains bearish, with the pair 3.5% below mid-November highs, amid the divergent monetary policy expectations of the Fed and the BoJ.

The focus today is on the US Nonfarm Payrolls report. The US economy is expected to have added 200,000 new jobs in November, with the unemployment rate ticking up to 4.2%.

Investors expect strong job creation, with higher unemployment and softer wage pressures, to cement hopes that the Fed will cut rates by a 25 bps cut in two weeks. Any deviation from these figures might boost volatility on US Dollar crosses.

In Japan, the market consensus anticipates a 25 bps hike later this month. That said, the dovish comments by board member Nakamura on Thursday have cast some doubts on the final decision, weighing on the Yen.

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.

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