USD/JPY refreshes two-day high at 150.80 as Japanese Yen weakens across the board

USD/JPY climbs to near 150.80 amid sheer weakness in the Japanese Yen.
Japan’s GDP rose faster by 1.2% in the third quarter of the year.
Investors await the US CPI data for fresh interest rate guidance.

The USD/JPY pair posts a fresh two-day high at 150.80 in the North American session on Monday. The asset surges more than 0.5% as the Japanese yen (JPY) weakens across the board amid growing doubts among market participants about whether the Bank of Japan (BoJ) will raise interest rates in the monetary policy meeting on December 19.

Traders seem to be less confident about the BoJ pushing interest rates higher even though Japan’s Q3 Gross Domestic Product (GDP) grew faster than projected. Japanese Cabinet Office reported in the Asian session that the economy rose by 1.2% compared to the same quarter of the previous year against the estimates and the Q2 growth of 0.9%.

Going forward, investors will focus on the Producer Price Index (PPI) data for November for fresh cues on price pressures, which will be published on Wednesday. The producer inflation is estimated to have grown steadily on a monthly as well as an annual basis.

Meanwhile, the US Dollar (USD) consolidates in a tight range, with investors focusing on the United States (US) Consumer Price Index (CPI) data for November, which will be published on Wednesday. The inflation data will significantly influence market expectations for the Federal Reserve’s (Fed) likely interest rate action in the policy announcement on December 18.

There is an 87% chance that the Fed will reduce interest rates by 25 basis points (bps) to 4.25%-4.50% on December 18, according to the CME FedWatch tool.

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.

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