Japanese Yen refreshes weekly low against USD; eyes US data for some impetus ahead of BoJ
- Japanese Yen is pressured by receding safe-haven demand and concerns about Japan's fiscal health.
- A modest USD uptick further supports USD/JPY ahead of the US PCE Price Index and the US GDP.
- The market focus will remain glued to the outcome of a crucial two-day BoJ policy meeting on Friday.
The Japanese Yen (JPY) touches a fresh weekly low against its American counterpart during the Asian session on Thursday amid a combination of negative factors. The global risk sentiment gets a strong lift in reaction to US President Donald Trump's U-turn on Greenland and undermines demand for traditional safe-haven assets, including the JPY. Apart from this, the recent chaotic selloff in Japan's bond markets, led by concerns about expansionary fiscal policy under Prime Minister Sanae Takaichi, keeps the JPY bulls on the sidelines.
However, expectations that Japanese authorities would step in to stem further weakness in the domestic currency could act as a tailwind for the JPY. Traders might also refrain from placing aggressive bets and opt to wait for more cues about the timing of the next rate hike by the Bank of Japan (BoJ). Hence, the focus will be on the outcome of a two-day BoJ meeting on Friday and Governor Kazuo Ueda's comments during the post-decision press conference, which would play a key role in determining the JPY's near-term trajectory.
Japanese Yen is undermined by easing trade war fears, fiscal worries
- US President Donald Trump pulled back from his threat to slap heavy tariffs on several European countries and said in Davos on Wednesday that he had reached an agreement on a framework for a future deal on Greenland with NATO. The S&P 500 rose sharply in reaction to the latest development, and the spillover effect lifts Asian equities on Thursday.
- Japan’s bond market suffered a severe selloff on Tuesday amid increasing concerns about the country’s fiscal health on the back of Prime Minister Sanae Takaichi’s fiscally expansionary policies. Adding to this, a tepid response to a 20-year debt auction on Tuesday added to the negative sentiment, pushing yields on long-dated government bonds to record highs.
- The negative fundamental backdrop for the Japanese Yen, however, is offset by hawkish Bank of Japan expectations. In fact, a Reuters report early this week suggested that some policymakers inside the BoJ see scope to raise interest rates as early as April. Moreover, the recent JPY downfall could add to price pressures and force the BoJ into faster action.
- In fact, a BoJ survey for December showed on Monday that most Japanese households expect prices to keep rising for the next few years. This comes on top of data released last Friday, which revealed that Japan’s inflation has averaged above the BoJ's 2% target for four straight calendar years, which, in turn, backs the case for further policy tightening.
- Meanwhile, Japan's Finance Minister Satsuki Katayama last week hinted at the possibility of joint intervention with the US to deal with the recent weakness in the domestic currency. The JPY bulls, however, seem reluctant to place aggressive bets and opt to move to the sidelines ahead of the crucial two-day BoJ policy meeting, starting this Thursday.
- The BoJ is scheduled to announce its decision on Friday and is expected to maintain the status quo after raising the overnight interest rate to 0.75%, or the highest in 30 years in December. Investors will scrutinize Governor Kazuo Ueda's remarks during the post-decision press conference for cues about the timing of the next rate hike, which will drive the JPY.
- The US Dollar gains some positive traction as the so-called 'Sell America' trade seems to have receded amid easing trade war fears. This further acts as a tailwind for the USD/JPY pair as investors now look to the release of the US Personal Consumption Expenditure (PCE) Price Index and the final US Q2 GDP growth report for some meaningful impetus.
USD/JPY could climb further as a breakout through 158.15 confluence comes into play
The overnight breakout through the 158.15 confluence – comprising the 100-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the recent pullback from the highest level since July 2024 – favors the USD/JPY bulls. The Moving Average Convergence Divergence (MACD) line stands above the Signal line, with both just over the zero mark, while a contracting histogram suggests momentum is cooling after the recent upswing. The Relative Strength Index (RSI) prints 58, above its midline, reinforcing mild bullish traction.
Meanwhile, the 50% retracement at 158.39 caps the rebound, and a decisive break higher would expose the next resistance at 61.8% Fibonacci retracement, around 158.63. That said, failure to clear the 50% level could see a pullback toward dynamic support at the 100-hour SMA.
(The technical analysis of this story was written with the help of an AI 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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
