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USD/JPY trades around 149.50 after rebounding from four-month lows

  • USD/JPY bounced back from a four-month low of 148.50 recorded on Thursday.
  • The US ISM Manufacturing PMI dropped to an eight-month low of 46.8 in July, down from 48.5 in June.
  • The Japanese Yen may advance as BoJ indicated that it may further increase rates if the economy requires it.

USD/JPY trades around 149.40 during the Asian session on Friday after rebounding from a four-month low of 148.50 recorded on Thursday. This upside of the USD/JPY pair could be attributed to the improved US Dollar (USD), which could be attributed to the increased risk-off mood following the recent manufacturing and employment data raising concerns about the US economy.

US Dollar (USD) receives support as markets are grappling with a delicate balancing act. However, an economic downturn heightens expectations for a rate cut by the Federal Reserve. The CME's FedWatch Tool indicates that traders are fully pricing in a 25-basis point rate cut on September 18. Furthermore, traders await upcoming US Nonfarm Payrolls and Average Hourly Earnings data for July, due to be released later in the North American session.

US ISM Manufacturing Purchasing Managers Index (PMI) tumbled to an eight-month low of 46.8 in July, compared to the previous 48.5 reading and the forecasted move up to 48.8. US Initial Jobless Claims for the week ended July 26 rose to 249K from the previous week’s 235K, exceeding the forecast uptick to 236K.

The Japanese Yen (JPY) has received support following the Bank of Japan's (BoJ) decision to raise its policy rate to a 16-year high of 0.25%. This move, along with the BoJ's indication that it may further increase rates if the economy requires it, could drive the JPY higher. Market expectations are now factoring in two additional rate hikes before the end of the fiscal year in March 2025, with the next increase anticipated in December. This outlook might limit the upside potential of the USD/JPY pair.

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

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.

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