- USD/JPY kicks off the new week on a positive note, albeit lacks any follow-through buying.
- Persistent geopolitical risks lend support to the safe-haven JPY and cap gains for the major.
- The divergent BoJ-Fed policy expectations also contribute to keeping bulls on the sidelines.
The USD/JPY pair attracts some dip-buyers on the first day of a new week, albeit struggles to find acceptance above the 147.00 mark and capitalize on the move up. Sot prices surrender a major part of the intraday gains and currently trade with a mild positive bias, around the 146.75-146.80 region.
A former Bank of Japan (BoJ) board member Makoto Sakurai said that the central bank will not be able to hike again in 2024 and predicts a rate hike by March 2025 citing the recent market turmoil and the low likelihood of a rapid economic recovery. This comes on top of the recent dovish remarks by BoJ Deputy Governor Shinichi Uchida, saying that the central bank won't hike rates when markets are unstable, and undermines the Japanese Yen (JPY), lending some support to the USD/JPY pair.
Apart from this, a generally positive tone around the equity markets dents the JPY's relative safe-haven status, which, along with a modest US Dollar (USD) uptick, contributes to the bid tone surrounding the USD/JPY pair. Meanwhile, the BoJ's summary of opinions from the July policy meeting released last week indicated that some members see room for further rate hikes and policy normalization. Moreover, geopolitical risks help limit deeper JPY losses and cap the USD/JPY pair.
In fact, the Israeli intelligence community believed that Iran has decided to attack Israel directly and may do so within days in retaliation for the assassination of Hamas leader Ismail Haniyeh in Tehran in late July. Furthermore, US Defense Secretary Lloyd Austin told his Israeli counterpart, Gallant, in a call that he has ordered the USS Abraham Lincoln carrier strike group to accelerate its transit to the Middle East and the USS Georgia guided missile submarine to the Central Command region.
This poses the risk of a further escalation of geopolitical tensions in the Middle East. Apart from this,
rising bets for bigger interest rate cuts by the Federal Reserve (Fed) in September hold back the USD bulls from placing aggressive bets. This, in turn, contributes to keeping a lid on the USD/JPY pair amid relatively thin liquidity on the back of a holiday in Japan and absent relevant market-moving economic data.
Traders also seem reluctant and might prefer to wait on the sidelines ahead of this week's release of the US consumer inflation figures before placing fresh directional bets. The crucial CPI report will play a key role in influencing the Fed's future policy decisions, which, in turn, should provide some meaningful impetus to the Greenback and the USD/JPY pair.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus 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 policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
GBP/USD retreats below 1.3050 after UK data
GBP/USD stays on the back foot and trades in negative territory below 1.3050 early Tuesday. The data from the UK showed that the ILO Unemployment Rate declined to 4% in the three months to August, with Employment Change rising 373K, but failed to support Pound Sterling.
EUR/USD drops below 1.0900 amid resurgent USD demand
EUR/USD drifts lower below 1.0900 in European trading on Tuesday. Resurgent US Dollar demand and a cautious risk tone weigh on the main currency pair. Traders now look to Germany's ZEW survey and Eurozone Industrial Production data ahead of Fedspeak.
Gold price remains depressed amid smaller Fed rate cut bets; lacks follow-through selling
Gold price ticks lower for the second straight day amid smaller Fed rate cut bets and a bullish USD. Signs of a slowdown in China – the biggest bullion consumer – further undermine the XAU/USD.
Bitcoin targets $70,000 as bullish momentum builds
Bitcoin is retesting its key resistance level, and a solid close above this threshold could fuel its ongoing rally. Meanwhile, Ethereum has successfully breached its resistance, signaling potential upward momentum, while Ripple approaches its crucial resistance barrier.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.