Japanese Yen holds ground amid rising odds of a bumper Federal Reserve interest rate cut
- The Japanese Yen receives support from the ongoing hawkish sentiment surrounding the Bank of Japan interest rates outlook.
- Japan’s Shunichi Suzuki stated that the government will continue to evaluate the stronger JPY and respond as necessary.
- CME FedWatch Tool suggests odds of a 50 basis points Fed interest rate cut have surged to 62.0%.
The Japanese Yen (JPY) remains solid for the sixth successive day against the US Dollar (USD) on Tuesday, driven by the hawkish sentiment surrounding the Bank of Japan interest rates outlook. Traders await the BoJ policy decision on Friday, with expectations of keeping rates unchanged while leaving the possibility open for rate hikes in October and December.
Japanese Finance Minister Shunichi Suzuki stated on Tuesday that rapid foreign exchange (FX) fluctuations are undesirable. Suzuki emphasized that officials will closely monitor how FX movements affect the Japanese economy and people's livelihoods. The government will continue to assess the impact of a stronger Japanese Yen and respond accordingly, according to Reuters.
The US Dollar remains under pressure as expectations grow that the Federal Open Market Committee (FOMC) may opt for a significant 50 basis point rate cut on Wednesday. According to the CME FedWatch Tool, markets are pricing in a 38.0% chance of a 25 basis points Federal Reserve interest rate cut at the September meeting, while the probability of a 50 basis point cut has surged to 62.0%, up from 50.0% just a day earlier.
Daily Digest Market Movers: Japanese Yen remains solid amid dovish Fed
- Rabobank economists Jane Foley and Molly Schwartz highlighted on Monday that JPY net long positions were at their highest level since October 2016. While there is minimal expectation for a rate hike by the Bank of Japan at its policy meeting on September 20, traders will be closely watching for any hints that October could potentially be a more active meeting.
- Commerzbank FX analyst Volkmar Baur anticipated that the Bank of Japan will remain on the sidelines this week. Baur noted that the Federal Reserve's actions are likely to have a greater impact on the USD/JPY pair, suggesting that the JPY could have a strong chance of falling below 140.00 per USD even without a rate hike from the BoJ.
- On Friday, Fitch Ratings' latest report on the Bank of Japan's policy outlook suggests that the BoJ might raise rates to 0.5% by the end of 2024, 0.75% in 2025, and 1.0% by the end of 2026.
- The University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, exceeding the market expectations of 68.0 reading and marking a four-month high. This increase reflects a gradual improvement in consumers' outlook on the US economy after months of declining economic expectations.
- The hawkish BoJ policymaker Naoki Tamura stated on Thursday that the central bank should raise interest rates to at least 1% as early as the second half of the next fiscal year. This comment reinforces the BoJ's commitment to ongoing monetary tightening.
- The US Producer Price Index (PPI) rose to 0.2% month-on-month in August, exceeding the forecasted 0.1% increase and the previous 0.0%. Meanwhile, core PPI accelerated to 0.3% MoM, against the expected 0.2% rise and July’s 0.2% decline.
Technical Analysis: USD/JPY remains tepid around 140.50 amid 14-month lows
USD/JPY trades around 140.60 on Tuesday. An analysis of the daily chart showed the USD/JPY pair moves downward within a descending channel, indicating a confirmed bearish bias. The 14-day Relative Strength Index (RSI), a momentum indicator, is positioned below the 30 level, suggesting an oversold situation for the pair and a potential for an upward correction soon.
In terms of support, the USD/JPY pair is testing 140.25, which is the lowest level since July 2023, followed by the psychological level of 140.00. A successful breach below this level could reinforce the bearish bias and put pressure on the pair to test the lower boundary of the descending channel at the level of 138.30.
On the upside, the USD/JPY pair might first encounter a barrier at the nine-day EMA around 141.95 level, followed by the 21-day EMA at 143.78 level. A break above these EMAs might weaken the bearish sentiment and push the pair to test the upper boundary of the descending channel at the 145.40 level.
USD/JPY: Daily Chart
Japanese Yen PRICE Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.09% | 0.11% | 0.08% | 0.08% | 0.12% | 0.20% | -0.02% | |
| EUR | -0.09% | 0.03% | -0.02% | -0.05% | 0.03% | 0.11% | -0.10% | |
| GBP | -0.11% | -0.03% | -0.02% | -0.03% | 0.01% | 0.11% | -0.15% | |
| JPY | -0.08% | 0.02% | 0.02% | -0.01% | 0.04% | 0.13% | -0.12% | |
| CAD | -0.08% | 0.05% | 0.03% | 0.01% | 0.05% | 0.14% | -0.11% | |
| AUD | -0.12% | -0.03% | -0.01% | -0.04% | -0.05% | 0.08% | -0.17% | |
| NZD | -0.20% | -0.11% | -0.11% | -0.13% | -0.14% | -0.08% | -0.25% | |
| CHF | 0.02% | 0.10% | 0.15% | 0.12% | 0.11% | 0.17% | 0.25% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
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.