USD/JPY trades with mild losses near 144.50 ahead of US Q2 GDP data

USD/JPY weakens near 144.50 in Thursday’s early Asian session.
BoJ’s Himino said central bank would continue to raise interest rates if inflation stayed on course.
The Fed's dovish stance undermines the US dollar against the JPY.

The USD/JPY pair remains on the defensive around 144.50 during the Asian trading hours on Thursday. The dovish remarks from the Federal Reserve (Fed) officials continue to undermine the US Dollar (USD) in the near term. Investors await the second estimate of US Gross Domestic Product (GDP) growth number for Q2, which is expected to grow 2.8%.

The Bank of Japan (BoJ) Deputy Governor Ryozo Himino stated on Wednesday that the Japanese central bank would continue to raise interest rates if inflation stayed on course, while also closely monitoring financial market conditions.

His comments echo those from BoJ Governor Kazuo Ueda last week, who said that recent market volatility would not derail its long-term rate hike plans. a majority of economists expect the BOJ to hike rates again this year, starting in December rather than October, according to a Reuters poll.

On the other hand, the dovish comments from the US central bank have weighed on the Greenback against the JPY. Fed Chair Jerome Powell said that “the time has come for policy to adjust.” The markets have fully priced in a 25 basis points (bps) rate cut in September, while the possibility of a deeper rate cut stands at 36.5%, according to the CME FedWatch Tool.

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.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.