Japanese Yen advances due to hawkish sentiment surrounding the BoJ
- The Japanese Yen appreciates as BoJ could increase rates by 10 basis points on Wednesday.
- The Bank of Japan is widely expected to announce its bond purchase tapering plans.
- The US Dollar depreciates as signs of cooling inflation have fueled the odds of three rate cuts by the Fed in 2024.
The Japanese Yen (JPY) continues to gain ground on Monday as traders remain cautious ahead of the Bank of Japan’s (BoJ) policy meeting on Wednesday which could see a potential rate hike. Markets are betting that the BoJ may lift rates by 10 basis points to 0.1% and is widely expected to announce its bond purchase tapering plans.
The JPY may also receive support as traders potentially unwind their carry trades ahead of the Bank of Japan's policy decision. Japan's top currency diplomat, Masato Kanda, informed the G20 on Friday that foreign exchange (FX) volatility negatively impacts the Japanese economy. Kanda noted an increasing likelihood of a soft landing and emphasized the need to monitor the economy and implement necessary measures closely, according to Reuters.
The US Dollar (USD) faces challenges as cooling inflation and easing labor market conditions in the United States (US) have fueled expectations of three rate cuts this year by the Federal Reserve (Fed), starting in September.
Daily Digest Market Movers: Japanese Yen improves due to expected rate hikes by the BoJ
- Japan's top council has urged the government and the Bank of Japan to be mindful of the weak JPY when formulating policy. The council emphasized that the impact of a weak Yen and rising prices on consumption cannot be simply overlooked.
- Reuters has published an extensive article on the Bank of Japan (BOJ) review of past policy, highlighting a significant shift in the central bank's approach to inflation. The key message from the review is that Japan is "ready for higher rates." However, the review will not result in changes to the price goal or policy framework.
- On Friday, the US Personal Consumption Expenditures (PCE) Price Index rose by 2.5% year-over-year in June, down slightly from 2.6% in May, meeting market expectations. On a monthly basis, the PCE Price Index increased by 0.1% after being unchanged in May.
- The US Core PCE inflation, which excludes volatile food and energy prices, also climbed to 2.6% in June, consistent with May's increase and above the forecast of 2.5%. The core PCE Price Index rose by 0.2% month-over-month in June, compared to 0.1% in May.
- The headline Tokyo CPI for July increased by 2.2% year-over-year, slightly down from the previous 2.3% rise. The Tokyo CPI excluding Fresh Food and Energy went up by 1.5% YoY, compared to the earlier increase of 1.8%. Moreover, the CPI excluding Fresh Food also rose by 2.2% in July, matching market expectations.
- Bank of America indicates that strong economic growth in the United States allows the Federal Open Market Committee (FOMC) to "afford to wait" before making any changes. The bank states that the economy "remains on robust footing" and continues to expect the Fed to start cutting rates in December.
- Last week, Japanese Finance Minister Shunichi Suzuki, Chief Cabinet Secretary Yoshimasa Hayashi, and top currency diplomat Masato Kanda avoided commenting on foreign exchange matters, according to Reuters.
- The BlackRock Investment Institute noted in its mid-year outlook that Japan’s that the Bank of Japan will not raise interest rates at next week's meeting. Additionally, JP Morgan has also anticipated no rate hike from the Bank of Japan (BoJ) in July or at any point in 2024.
Technical Analysis: USD/JPY falls toward 153.00
USD/JPY trades around 153.20 on Monday. The daily chart analysis shows that the USD/JPY pair tests the descending channel, indicating a potential strengthening of the bearish bias. Additionally, the 14-day Relative Strength Index (RSI) is below the 30 level, signaling an oversold situation and suggesting a potential short-term rebound.
A break below the lower boundary of the descending channel around the level of 153.00 could exert downward pressure, potentially pushing the USD/JPY pair to revisit May's low of 151.86. Additional support may be found at the psychological level of 151.00.
On the upside, the USD/JPY pair may test the "throwback support turned resistance" around 154.50. Further resistance is likely at the nine-day Exponential Moving Average (EMA) of 155.24, followed by the upper boundary of the descending channel near 156.20.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.02% | -0.03% | -0.28% | -0.09% | -0.15% | -0.02% | -0.08% | |
| EUR | 0.02% | -0.05% | -0.27% | -0.04% | -0.08% | -0.02% | -0.04% | |
| GBP | 0.03% | 0.05% | -0.26% | -0.02% | -0.04% | 0.04% | 0.00% | |
| JPY | 0.28% | 0.27% | 0.26% | 0.15% | 0.14% | 0.23% | 0.21% | |
| CAD | 0.09% | 0.04% | 0.02% | -0.15% | -0.03% | 0.04% | 0.02% | |
| AUD | 0.15% | 0.08% | 0.04% | -0.14% | 0.03% | 0.10% | 0.03% | |
| NZD | 0.02% | 0.02% | -0.04% | -0.23% | -0.04% | -0.10% | -0.04% | |
| CHF | 0.08% | 0.04% | -0.01% | -0.21% | -0.02% | -0.03% | 0.04% |
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).
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Akhtar Faruqui
FXStreet
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.
