The Japanese Yen firms on a BoJ speech about AI and gives it all back

USD/JPY round-trips a dip toward 157.50 on a BoJ speech about AI.
BoJ Governor Ueda speaks Tuesday at 06:35 GMT, first since the September hike.
August wages due Tuesday at 23:30 GMT, forecast at 3.7% YoY from 4.7%.

Joshua Gibson FXStreet

Bank of Japan (BoJ) Governor Ueda speaks on Tuesday at 06:35 GMT, and his first major remarks since the September 18 hike to 1.25% are the next test of October hike bets. Traders give a second hike on October 30 about a one-in-four chance. USD/JPY has crossed 158.00 in both directions in each of the last three sessions and trades just under it.

BoJ Deputy Governor Uchida said on Monday that artificial intelligence (AI) is a large positive demand shock pushing up activity and prices. USD/JPY dipped toward 157.50 around the remarks and was back above 158.00 well before the US data. He also said AI has made financial conditions more accommodative on balance, less than three weeks after the BoJ raised rates to tighten them.

A hike every three months points to December, not October

The BoJ raised its rate in June and again in September, and traders read the three-month gap as its pace. Governor Ueda said after the September hike that the BoJ's focus has moved from lifting inflation toward 2% to stopping it from overshooting. Stopping an overshoot before it happens would mean hiking in October, not waiting for December.

Wage growth is forecast to slow by a fifth in a month

Japan's August labour cash earnings are due on Tuesday at 23:30 GMT, forecast to rise 3.7% YoY after 4.7% in July. A slowdown that size would make an October hike harder to argue for. Governor Ueda speaks before the figures are out, so whatever he says about October comes without them.

The Fed's September minutes follow on Wednesday at 18:00 GMT. The Fed decides on October 28, two days before the BoJ, so the US half of the rate gap gets the first move.

The Yen's range into Governor Ueda

Resistance: The last three sessions have all peaked short of 158.50, the level the October 1 rally stopped under. 159.00, the September 24 high, is the next cap.

Support: Monday's low, just under 157.50, is the highest of the last four sessions. Friday's low, just under 157.00, marks where the payrolls dip ended.

Bias: Buyers keep the edge while 157.50 holds on a closing basis, aiming at 158.50 and then 159.00. The daily Stochastic Relative Strength Index (Stoch RSI) is near 84 and flattening above 80, so a firm-sounding Governor Ueda could pull the pair back to 157.50 without breaking the call. A daily close below 157.00 ends it.

USD/JPY daily chart

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact 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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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