Japanese Yen retains positive bias amid intervention fears, hawkish BoJ outlook
- Japanese Yen attracts follow-through buying amid intervention fears and BoJ rate hike bets.
- Geopolitical uncertainties and renewed trade war concerns also benefit the safe-haven JPY.
- The emergence of fresh USD selling exerts additional downward pressure on the USD/JPY pair.
The Japanese Yen (JPY) retreats slightly from over a one-week high, touched against a broadly weaker US Dollar (USD) during the Asian session on Monday, though any meaningful downside seems elusive. Speculations that Prime Minister Sanae Takaichi may soon call a snap election to cement her authority and further boost the expansionary fiscal policy hold back the JPY bulls from placing aggressive bets. However, a warning of a possible intervention by Japan's Finance Minister Satsuki Katayama, to counter weakness in the domestic currency, might continue to act as a tailwind for the JPY.
Furthermore, prospects for an early interest rate hike by the Bank of Japan (BoJ) should contribute to limiting losses for the JPY. Meanwhile, US President Donald Trump vowed on Saturday to impose tariffs on eight European countries that have opposed his plan to take Greenland, reigniting trade war concerns. This comes on top of geopolitical risks and tempers investors' appetite for riskier assets, which should lend an additional boost to the safe-haven JPY. The USD, on the other hand, retreats from its highest level since December 9. This warrants caution before confirming that the USD/JPY pair's pullback from the 18-month top, touched last week, has run its course and positioning for any further recovery.
Japanese Yen bulls have the upper hand amid flight to safety, intervention fears and BoJ rate hike bets
- Japan’s Finance Minister Satsuki Katayama said on Friday that all options, including a direct and coordinated intervention with the US, are being considered to address the recent weakness in the Japanese Yen.
- A Reuters report, citing sources, suggests that some policymakers inside the Bank of Japan see scope to raise interest rates sooner than markets currently expect, as early as April, further lending support to the JPY.
- US President Donald Trump threatened to slap a 10% tariff on goods from eight European countries starting from February 1, until the US is allowed to buy Greenland, triggering a fresh wave of the risk-aversion trade.
- European Union ambassadors reached a broad agreement on Sunday to intensify efforts to dissuade Trump from imposing levies on allies, while also preparing retaliatory measures should the duties go ahead.
- Moreover, geopolitical risks stemming from the protracted Russia-Ukraine war and lingering worries about a possible US military strike against Iran benefit the JPY's safe-haven status at the start of a new week.
- The US Dollar attracts heavy selling as fresh trade war fears trigger a crisis of confidence in US assets, which offsets reduced bets for two more interest rate cuts by the US Federal Reserve by the end of this year.
- Reports suggest that Japan's Prime Minister Sanae Takaichi plans to dissolve parliament and call a snap parliamentary election in the first half of February to seek public backing for her fiscally expansionist policies.
- With Takaichi's popularity running high, a win would bolster her coalition government’s parliamentary majority and cement her authority to pursue her spending plans, which warrants caution for the JPY bulls.
- Traders might also opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index on Thursday and the crucial BoJ monetary policy decision on Friday before placing fresh directional bets.
USD/JPY finds some support near 61.8% Fibo. level; not out of the woods yet
The USD/JPY pair finds decent support near the 61.8% Fibonacci retracement level of the recent move up from the monthly peak. A subsequent strength beyond the 50% retracement level, around the 157.80 area, could pave the way for further gains, though a stronger recovery would need additional momentum confirmation.
The Moving Average Convergence Divergence (MACD) hovers just below the zero line as readings firm toward -0.01, suggesting fading bearish pressure. The Relative Strength Index (RSI) prints 43 (neutral-bearish), stabilizing after an earlier oversold dip.
Meanwhile, the USD/JPY pair trades below the flattening 100-hour Simple Moving Average (SMA), around the 158.55 region, which should cap rebounds. A close back above this average would tilt the near-term tone higher.
(The technical analysis of this story was written with the help of an AI tool.)
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
