Japanese Yen depreciates as traders expect BoJ to delay rate hikes
- The Japanese Yen edges lower as the BoJ appears to be in no rush to raise interest rates.
- BoJ Governor Ueda may consider raising rates if the economy and inflation align with projections outlined in quarterly outlook report.
- Minneapolis Fed President Neel Kashkari believes there should be and will be additional interest rate cuts in 2024.
The Japanese Yen (JPY) loses ground against the US Dollar (USD) on Tuesday, following rising concerns that the Bank of Japan (BoJ) is not hurrying to raise interest rates. Following the BoJ's policy decision on Friday. The BoJ Governor Kazuo Ueda said that it is “appropriate to raise rates if trend inflation heightens in line with our forecast.”
BoJ Governor Ueda stated that Japan's real interest rate remains deeply negative, stimulating the economy and working to push up prices. He also said that "they will raise interest rate if the economy, prices move in line with forecasts shown in quarterly outlook report.
Japan’s Finance Minister Shunichi Suzuki stated on Tuesday that he is “monitoring the impacts of central banks' monetary policies.” Suzuki expressed his expectation that the Bank of Japan will implement appropriate monetary policy measures while maintaining close coordination with the government.
The USD/JPY pair may weaken due to increasing expectations for further rate cuts by the US Federal Reserve (Fed) in 2024. According to the CME FedWatch Tool, markets are pricing in a 50% likelihood of a 75 basis point reduction, bringing the Fed's rate to a range of 4.0-4.25% by the end of this year.
Daily Digest Market Movers: Japanese Yen remains subdued amid the dovish BoJ
- The Jibun Bank Japan Composite Purchasing Managers Index (PMI) declined to 52.5 in September, down from a final reading of 52.9 in August, which was the highest in 15 months. Despite this decrease, it marks the eighth consecutive month of growth in private sector activity this year, primarily driven by the service sector. The Services PMI increased to 53.9 in September, up from a final 53.7 in the previous month.
- The S&P Global US Composite PMI grew at a slower rate in September, registering 54.4 compared to 54.6 in August. The Manufacturing PMI unexpectedly dropped to 47.0, indicating contraction, while the Services PMI expanded more than anticipated, reaching 55.4.
- Minneapolis Fed President Neel Kashkari said on Monday that he believes there should be and will be additional interest rate cuts in 2024. However, Kashkari expects future cuts to be smaller than the one from the September meeting, per Reuters.
- Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said Monday that the US economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to "normalize" as well, per Reuters.
- On Monday, Japan's new "top currency diplomat," Atsushi Mimura, stated in an interview with NHK that the Yen carry trades accumulated in the past have likely been mostly unwound. Mimura cautioned that if such trades were to increase again, it could lead to heightened market volatility. "We are always monitoring the markets to ensure that does not happen," he added.
- Japan's Consumer Price Index (CPI) increased to 3.0% year-on-year in August, up from 2.8% previously, marking the highest level since October 2023. Additionally, the Core National CPI, excluding fresh food, reached a six-month high of 2.8%, rising for the fourth consecutive month and in line with market expectations.
- Federal Reserve Chair Jerome Powell commented on the aggressive 50 basis point rate cut, saying, “This decision reflects our increased confidence that, with the right adjustments to our policy approach, we can maintain a strong labor market, achieve moderate economic growth, and bring inflation down to a sustainable 2% level.”
Technical Analysis: USD/JPY holds position above the nine-day EMA near 143.50
USD/JPY trades around 143.70 on Tuesday. Daily chart analysis indicates that the pair is moving within a descending channel, signaling a bearish trend. Furthermore, the 14-day Relative Strength Index (RSI) is just below the 50 level, reinforcing the prevailing bearish sentiment.
On the downside, the USD/JPY pair may test the nine-day EMA at the 143.01 level. A break below this level could lead the pair to explore the 139.58 region, marking its lowest point since June 2023.
Alternatively, immediate resistance is identified at the upper boundary of the descending channel, around the 144.30 level. A breakout above this level could enable the USD/JPY pair to challenge the psychological barrier of 145.00.
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 weakest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.05% | 0.53% | -0.19% | 0.12% | 0.03% | 0.00% | |
| EUR | 0.12% | 0.07% | 0.64% | -0.11% | 0.24% | 0.12% | 0.13% | |
| GBP | 0.05% | -0.07% | 0.58% | -0.14% | 0.19% | 0.05% | 0.07% | |
| JPY | -0.53% | -0.64% | -0.58% | -0.69% | -0.42% | -0.55% | -0.52% | |
| CAD | 0.19% | 0.11% | 0.14% | 0.69% | 0.31% | 0.20% | 0.21% | |
| AUD | -0.12% | -0.24% | -0.19% | 0.42% | -0.31% | -0.11% | -0.10% | |
| NZD | -0.03% | -0.12% | -0.05% | 0.55% | -0.20% | 0.11% | 0.02% | |
| CHF | -0.01% | -0.13% | -0.07% | 0.52% | -0.21% | 0.10% | -0.02% |
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
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.
