USD/JPY trades flattish near 152.00 on US presidential election day

USD/JPY remains flat-lined near 152.00 as traders are uncertain about the US presidential election outcome.
The Fed is expected to cut interest rates by 25 bps on Thursday.
Investors await BoJ minutes to get fresh cues about when the central bank will hike interest rates again.

The USD/JPY pair trades sideways near 152.00 in the North American session on Tuesday. The asset remains sideways as investors have been sidelined with the United States (US) presidential elections underway. Ahead of the completion of the voting process, traders expect fierce competition between former President Donald Trump and Democratic contender Kamala Harris.

The pair will be guided by market expectations for the US election outcome, which will be influenced by exit polls. According to analysts at TD Securities, “A Red Wave (favoring Republicans) would kick-start a sizeable USD rally. It would rekindle memories of US Exceptionalism, anchored by tariffs, tax cuts, deregulation, and negative impacts on the outlook for EZ and China."

At the time of writing, the US Dollar slumps, with the US Dollar Index (DXY) declining to 103.70. This week, investors will also focus on the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Thursday.

According to the CME FedWatch tool, traders have priced an interest rate reduction by 25 basis points (bps) to 4.50%-4.75%. This will be the second straight interest rate cut, however, the size of rate cut will be smaller as risks of an economic downturn have diminished lately. In September, the Fed reduced its interest rates by 50 bps.

On the Tokyo front, investors await Bank of Japan (BoJ) monetary policy minutes for the October 31 meeting in which the central bank kept interest rates unchanged at 0.25% for the second time in a row. BoJ Governor Kazu Ueda didn’t provide any cues about more interest rate hikes. “We will scrutinize data available at the time at each policy meeting, and update our view on the economy and outlook in deciding policy,” Ueda said.

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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