USD/JPY – Surging Yen improves to 15-week high

The Japanese yen continues to rally. USD/JPY is trading at 148.86 in the European session, down 0.31% on the day at the time of writing. On Thursday, the yen strengthened as much as 148.50, its best showing since May 11.

Yen continues to pummel US Dollar

Only three weeks ago, the yen looked dead in the water. USD/JPY was trading just shy of 162, its highest level in almost four decades. Since then, the yen has been on an absolute tear, rising a staggering 7.9%, including 3.1% this week.

What is driving the yen’s spectacular turnaround? First, the Bank of Japan raised interest rates this week to 0.25%. Although rates remain at low levels, this rate increase, the second since March, indicates that the BoJ is slowly making the shift to normalization after decades of an ultra-loose accommodative policy.

The BoJ also announced it would taper its bond purchases, which is another tightening step.
Second, investors have become less enthusiastic about the US dollar now that a September cut is looking very likely and are looking to park their assets elsewhere.

The US economy is showing some signs of weakness, such as this week’s ISM manufacturing PMI for July, which posted the sharpest contraction since November 2023. This has driven funds away from the US dollar towards safe-haven assets such as the yen. Today’s nonfarm payrolls are expected to fall from 206 thousand to 175 thousand, which could further boost the yen at the expense of the US dollar.

This week’s BoJ rate hike showed that change is afoot in Japan and the government’s annual white paper on economic and fiscal policy, which was released today, supported that view. The white paper said that Japan was showing signs of breaking out of deflation, noting that businesses were now passing on costs to consumers due to increased costs from the yen’s sharp decline.

USD/JPY technical

• USD/JPY continues to break below support levels. Earlier, it pushed below support at 149.19 and is testing support at 148.72. Below, there is support at 149.59.

• 150.03 and 150.44 are the next resistance lines.