Japanese Yen underperforms peers despite post-election US Dollar sell-off
- USD/JPY trims a part of earlier losses as the Japanese Yen struggles to benefit from broad US Dollar weakness.
- US midterm results push the US Dollar to five-week lows.
- Wide interest rate differentials limit the Yen’s gains despite the BoJ’s hawkish stance.
USD/JPY trades with a negative bias on Wednesday as the US Dollar (USD) slides to five-week lows following the US midterm election results. However, the Japanese Yen (JPY) struggles to capitalize on the Greenback’s weakness, trimming a large part of its earlier gains while underperforming most major peers.
At the time of writing, USD/JPY trades around 158.32, down 0.24% on the day, after reaching an intraday low of 157.39.
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 | -0.61% | -0.58% | -0.24% | -0.43% | -0.69% | -0.40% | -0.64% | |
| EUR | 0.61% | 0.04% | 0.39% | 0.16% | -0.09% | 0.21% | -0.02% | |
| GBP | 0.58% | -0.04% | 0.36% | 0.15% | -0.11% | 0.16% | -0.07% | |
| JPY | 0.24% | -0.39% | -0.36% | -0.19% | -0.46% | -0.17% | -0.41% | |
| CAD | 0.43% | -0.16% | -0.15% | 0.19% | -0.27% | 0.02% | -0.22% | |
| AUD | 0.69% | 0.09% | 0.11% | 0.46% | 0.27% | 0.29% | 0.05% | |
| NZD | 0.40% | -0.21% | -0.16% | 0.17% | -0.02% | -0.29% | -0.23% | |
| CHF | 0.64% | 0.02% | 0.07% | 0.41% | 0.22% | -0.05% | 0.23% |
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).
The US Dollar came under pressure as Democrats’ victory in both houses of Congress sets the stage for a divided government, raising the risk of political gridlock in Washington and adding uncertainty over fiscal policy. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.40, down 0.44% on the day and near five-week lows.
Analysts at MUFG/BTMU argue that the recent US mid-term election outcome is “unlikely to impact the US-Japan relationship and the strong message emanating from Washington over its opposition to the continued weakness of the yen.” They note that the latest bout of Yen strength offers only limited relief, stressing that “the reprieve for the yen is marginal (today’s gain is USD-related) with the rates/FX link for the yen still relatively weak.”
MUFG/BTMU point out that “intervention in July / early August has distorted the link with rates,” but add that the currency’s behaviour continues to highlight deeper forces at work: “what the movement of the yen does indicate is that there are still some structural flows that continue to weigh on yen performance and those flows could well be slow to change.”
The interest rate gap between Japan and other major economies remains wide, with the Bank of Japan’s (BoJ) policy rate at 1.25%. While the BoJ is tightening gradually, inflation pressures from the Middle East energy shock have prompted other major central banks to raise interest rates, with further hikes also expected.
Traders price in an 82% chance that the Federal Reserve (Fed) will raise interest rates again in December, according to the CME FedWatch Tool. The prospect of further tightening could also cushion the US Dollar’s decline.
As a result, the BoJ’s hawkish stance offers limited support to the Yen, as interest rate differentials are expected to remain wide, leaving the currency at a yield disadvantage. Nevertheless, intervention warnings from Japanese officials keep traders cautious about betting against the Yen. Finance Minister Satsuki Katayama said on Monday that Japan would act against disorderly or excessively speculative currency moves.
Looking ahead, Japan’s economic calendar remains light for the rest of the week, leaving US data in focus. Wednesday brings the ADP Employment Change report and ISM Services PMI, followed by Initial Jobless Claims on Thursday and Nonfarm Payrolls (NFP) on Friday.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
Author
Vishal Chaturvedi
FXStreet
I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.
