- The Japanese Yen lacks any firm intraday directional bias on Thursday amid mixed cues.
- BoJ rate hike ambiguity and domestic political uncertainty seem to undermine the JPY.
- Rising Fed rate cut bets keep the USD depressed and act as a headwind for USD/JPY.
The Japanese Yen (JPY) struggles to capitalize on its recovery from a one-month trough touched against its American counterpart the previous day and oscillates in a narrow range during the Asian session on Thursday. Market participants remain divided over the likely timing and pace of Bank of Japan (BoJ) rate hikes amid tariff-related uncertainties. Furthermore, the recent surge in global bond yields has shifted focus again to rising debt levels across major economies, including Japan, which, along with domestic political uncertainty, holds back the JPY bulls from placing aggressive bets.
Adding to this, a stable performance around the equity markets is seen as another factor acting as a headwind for the safe-haven JPY. Meanwhile, expectations that wages are set to rise further in a tight labor market, which, in turn, could fuel demand-driven inflation, keep the door open for additional BoJ tightening. In contrast, the US Federal Reserve (Fed) is widely expected to lower borrowing costs later this month, and the bets were reaffirmed by softer US JOLTS Job Openings data on Wednesday. This keeps the US Dollar (USD) bulls on the defensive and might continue to support the JPY.
Japanese Yen traders seem non-committed as heightened political uncertainty offsets BoJ-Fed policy divergence
- Bank of Japan Deputy Governor Ryozo Himino warned on Tuesday that global economic uncertainty remains high, suggesting that the central bank is in no rush to push up still-low borrowing costs. However, BoJ Governor Kazuo Ueda on Wednesday showed readiness to continue raising interest rates if the economy and prices move in line with the central bank’s projections.
- Meanwhile, investors continue to bet that the BoJ could raise rates before year-end on the back of firm wage growth, still sticky inflation, and a brighter economic outlook. This, in turn, acts as a tailwind for the Japanese Yen during the Asian session on Thursday, though domestic political uncertainty caps the overnight recovery from a one-month low touched the previous day.
- The Japanese ruling party’s secretary general Hiroshi Moriyama’s intention to resign have stoked uncertainty around Prime Minister Shigeru Ishiba’s leadership. The announcement revived worries about Japan’s fiscal position and contributed to the recent surge in Japan’s 30-year government bond yield to a record high, well above the 3% mark, touched earlier this week.
- The US Bureau of Labor Statistics (BLS) published the Job Openings and Labor Turnover Survey (JOLTS) on Wednesday, which showed that the number of job openings on the last business day of July stood at 7.18 million. This followed the previous month’s downwardly revised reading of 7.35 million and came in well below the market expectation of 7.4 million.
- Nevertheless, the softer data increased the likelihood of the Federal Reserve cutting interest rates at the end of a two-day policy meeting on September 17. Moreover, traders are pricing in at least two 25 basis points rate cuts by the year-end, which, in turn, fails to assist the US Dollar to attract any meaningful buyers and should act as a headwind for the USD/JPY pair.
- Traders now look forward to Thursday’s US economic docket – featuring the ADP report on private-sector employment and ISM Services PMI. The focus, however, will remain glued to the official US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report – on Friday, which will drive the USD and provide a fresh impetus to the USD/JPY pair.
USD/JPY bears await acceptance below 148.00 before positioning for deeper losses
The overnight failure to build on momentum beyond the 200-day Simple Moving Average (SMA) and a sharp pullback from the 61.8% Fibonacci retracement level of the downfall from the August monthly swing high favour the USD/JPY bears. That said, positive oscillators on the daily chart make it prudent to wait for acceptance below the 148.00 mark before positioning for deeper losses. Spot prices might then accelerate the fall to the 147.40 intermediate support en route to the 147.00 mark and the 146.70 horizontal zone. A convincing break below the latter would expose the August swing low, around the 146.20 region, before spot prices eventually test the 146.00 mark.
On the flip side, a positive move back above the 148.30-148.25 static barrier could lift the USD/JPY pair back towards the 200-day SMA, currently pegged near the 148.75-148.80 region. Some follow-through buying, leading to a subsequent strength beyond the 149.00 mark and the 149.20 area, or the 61.8% Fibo. retracement level, will be seen as a fresh trigger for bulls. Spot prices might then aim to reclaim the 150.00 psychological mark. The momentum could extend further towards challenging the August monthly swing high, around the 151.00 neighborhood.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
