Japanese Yen strengthens above 153.00 despite stronger US jobs data
- USD/JPY weakens to near 153.20 in Thursday’s early Asian session.
- Markets bet Japan's PM Takaichi could be more fiscally responsible.
- Nonfarm Payrolls rose by 130,000 in January, stronger than expected.
The USD/JPY pair attracts some sellers to around 153.20 during the early Asian session on Thursday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) in the aftermath of Prime Minister Sanae Takaichi's landslide election victory. The attention will shift to the US Consumer Price Index (CPI) inflation report, which is due later on Friday.
Analysts and traders believe that there are positive signals that Takaichi could be more fiscally responsible, and more market-friendly policies may be on the horizon. Traders pour into Japanese stocks in anticipation of stimulus flowing to consumers and Japanese companies, boosting demand for the JPY and acting as a headwind for the pair.
"Such a sweeping victory hands the Takaichi regime better control over the JGB-bearish and the yen-bearish aspects of the so-called Takaichi trade," said Vishnu Varathan, Mizuho's head of macro research for Asia ex-Japan.
However, the upbeat US jobs data might help limit the USD’s losses in the near term. The US Nonfarm Payrolls (NFP) rose by 130,000 in January, versus a 48,000 (revised from 50,000) increase recorded in December, the US Bureau of Labor Statistics (BLS) reported on Wednesday. This figure came in stronger than the market expectation of 70,000. Additionally, the Unemployment Rate ticked lower to 4.3% in January from 4.4% in December.
The strong employment data for January reduces the chances the Federal Reserve (Fed) will see a need to cut interest rates again by midyear. Markets are now pricing in a 94% chance that the US central bank will leave rates unchanged at its next meeting, up from 80% from the previous day, according to the CME FedWatch tool.
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 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.
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.
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.