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Japanese Yen improves as US Dollar remains tepid due to rising odds of Fed rate cuts

  • The Japanese Yen extends gains as traders expect the BoJ to raise rates next week.
  • Toshimitsu Motegi, a senior official in the ruling party, urged the BoJ to communicate its plan to normalize monetary policy.
  • Media reports indicate that Vice President Kamala Harris has now surpassed 1,976 Democratic delegates, securing the party's presidential nomination.

The Japanese Yen (JPY) extends its gains for the second successive session on Tuesday, which could be attributed to the increased risk aversion. Traders assess the interest rate decision by the Bank of Japan (BoJ) next week, where an interest rate hike might be on the table to support the JPY.

Toshimitsu Motegi, a senior official in the ruling party, urged the Bank of Japan (BoJ) to more clearly communicate its plan to normalize monetary policy through gradual interest rate hikes, highlighting that excessive Yen declines were adversely affecting the economy, according to Reuters. Prime Minister Fumio Kishida added that normalizing the central bank’s monetary policy would support Japan's transition to a growth-driven economy.

The USD/JPY pair faces challenges as the US Dollar (USD) struggles due to rising bets on a Federal Reserve (Fed) rate cut in September. Federal Reserve (Fed) Chair Jerome Powell noted that he is becoming more hopeful about the progress on inflation in recent months. Meanwhile, Fed Governor Christopher Waller stated that the time to lower the policy rate is drawing closer.

Daily Digest Market Movers: Japanese Yen gains ground due to increased aversion

Media reports say that Vice President Kamala Harris has just passed 1,976 Democratic delegates to secure the party's presidential nomination. Harris is now the Democratic Party’s Presumptive Nominee for November’s Presidential Election.

Federal Reserve Bank of New York President John Williams stated on Friday that the long-term trends that caused declines in neutral interest rates before the pandemic continue to prevail. Williams noted, "My own Holston-Laubach-Williams estimates for r-star in the United States, Canada, and the Euro area are about the same level as they were before the pandemic," according to Bloomberg.

Japan's National Consumer Price Index (CPI) for June held steady at 2.8%, matching the previous month's figure and remaining at the highest level since February. Meanwhile, Core CPI inflation rose to 2.6%, slightly above the previous reading of 2.5% but just below the consensus estimate of 2.7%.

JP Morgan has anticipated no rate hike from the Bank of Japan (BoJ) in July or at any point in 2024. A July rate increase is not their base case, and they do not expect any hikes for the remainder of 2024. They believe it is too early to adopt a bullish stance on the Yen.

Kazushige Kamiyama, a senior Bank of Japan (BoJ) official and the central bank’s Osaka branch manager, said on Thursday that the BoJ wants to maintain an accommodative monetary environment as much as possible, per Jiji News Agency.

During an interview with Bloomberg News on Tuesday, Donald Trump cautioned Fed Chair Jerome Powell against cutting US interest rates before November’s presidential vote. However, Trump also indicated that if re-elected, he would allow Powell to complete his term if he continued to "do the right thing" at the Federal Reserve.

Last week, BoJ data suggested that authorities may have intervened by purchasing nearly ¥6 trillion on July 11-12. Additionally, data revealed that Japan sold approximately $22 billion in US Treasuries in May to raise dollars, bolstering its reserves for potential foreign exchange market operations, according to Reuters.

Technical Analysis: USD/JPY falls to near 156.50

USD/JPY trades around 156.60 on Tuesday. The daily chart analysis shows that the pair is below its nine-day Exponential Moving Average (EMA) of 157.75, suggesting short-term downward momentum. Additionally, the 14-day Relative Strength Index (RSI) is below 50, reinforcing a bearish outlook.

The USD/JPY pair may encounter significant support near June’s low of 154.55. A decline below this level could lead to a further drop toward May’s low of 151.86.

On the upside, immediate resistance is at the nine-day EMA of 157.75. A breakout above this level could push the USD/JPY pair toward the resistance around the psychological level of 162.00.

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 Australian Dollar.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.08%0.14%-0.38%0.07%0.21%0.22%0.04%
EUR-0.08% 0.06%-0.43%-0.01%0.12%0.12%-0.04%
GBP-0.14%-0.06% -0.51%-0.06%0.08%0.07%-0.11%
JPY0.38%0.43%0.51% 0.45%0.57%0.56%0.37%
CAD-0.07%0.00%0.06%-0.45% 0.13%0.12%-0.05%
AUD-0.21%-0.12%-0.08%-0.57%-0.13% -0.01%-0.19%
NZD-0.22%-0.12%-0.07%-0.56%-0.12%0.00% -0.18%
CHF-0.04%0.04%0.11%-0.37%0.05%0.19%0.18% 

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.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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