USD/JPY rises above 144.00 after mixed US flash PMI

USD/JPY gains above 144.00 after the release of the mixed preliminary US S&P Global PMI data for September.
The US Services PMI came in better-than-forecasted at 55.4.
Investors await BoJ Ueda’s speech on Tuesday.

The USD/JPY pair moves higher above 144.00 in Monday’s North American session after the release of the mixed preliminary United States (US) S&P Global Purchasing Managers’ Index (PMI) data for September.

The report showed that the Composite PMI expanded at a slower pace to 54.4 from 54.6 in August. A sharp contraction in activities in the manufacturing sector was offset by better-than-projected service sector activity. The Manufacturing PMI declined unexpectedly to 47.0, which was expected to have improved to 48.5 from the prior release of 47.9. The Services PMI, a measure of activities in the services sector that accounts for two-thirds of the US economy, lands higher at 55.4 from the estimates of 55.2 but remained lower than the prior reading of 55.7.

Mixed flash US PMI has prompted some recovery in the US Dollar (USD) as the US Dollar Index (DXY) gathers strength to decisively break above 101.00. Going forward, the US Dollar will be guided by market expectations of the Federal Reserve’s (Fed) interest rate outlook.

The asset struggles for a direction as investors await the Bank of Japan (BoJ) Governor Kazuo Ueda’s speech on Tuesday, in which he is expected to provide fresh guidance on the interest rate outlook.

Last week, the comments from Kazuo Ueda in the press conference after the monetary policy decision indicated that the BoJ is in no rush to hike interest rates further. BoJ Governor Kazuo Ueda said, "Our decision on monetary policy will depend on economic, price, and financial developments at the time. Japan's real interest rates remain extremely low. If our economic and price forecasts are achieved, we will raise interest rates and adjust the degree of monetary support accordingly," at the press conference.

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 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.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

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.

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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