- The Japanese Yen struggles to lure buyers amid uncertainty over future BoJ rate hikes.
- Hopes for a possible Hezbollah-Israel ceasefire further undermine the safe-haven JPY.
- Intervention fears cap USD/JPY amid subdued USD demand, ahead of FOMC minutes.
The Japanese Yen (JPY) attracted some intraday sellers on Tuesday in reaction to data, which showed that Japan’s real wages fell in August after two months of gains. Furthermore, household spending also declined during the reported month, raising doubts about the strength of private consumption and a sustained economic recovery. This comes on top of blunt comments on monetary policy by Japan’s new Prime Minister and fuels uncertainty over the Bank of Japan’s (BoJ) plans for additional rate hikes. News of a possible Hezbollah-Israel ceasefire undermined demand for the safe-haven JPY and assisted the USD/JPY pair in stalling its modest pullback from the highest level since August touched on Monday.
However, renewed speculations that Japanese authorities might intervene to support the domestic currency hold back the JPY bears from placing aggressive bets. Apart from this, subdued US Dollar (USD) demand keeps a lid on any meaningful upside for the USD/JPY pair and leads to the range-bound price action during the Asian session on Wednesday. Investors also seem reluctant and prefer to wait on the sidelines ahead of the release of the September FOMC meeting minutes later today. This, along with the US Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively, will influence the USD price dynamics and determine the next leg of a directional move for the currency pair.
Daily Digest Market Movers: Japanese Yen remains on the defensive amid BoJ rate hike uncertainty
- According to the government data released on Tuesday, real wages in Japan – the world’s fourth-largest economy – fell 0.6% and household spending declined by 1.9% in August from the same month a year earlier.
- This, along with comments from Japan’s Prime Minister Shigeru Ishiba, saying that the country is not in an environment for more rate increases, could derail the Bank of Japan’s rate-hike plans in the coming months.
- Israeli forces made new incursions in the south of Lebanon on Tuesday, raising the risk of a full-blown war in the Middle East, though the fears eased after Iran-backed Hezbollah left the door open for a negotiated ceasefire.
- Japan’s Finance Minister Katsunobu Kato said earlier this week that the government would monitor how rapid currency moves could potentially impact the economy and would take action if necessary.
- The Reuters Tankan monthly poll showed on Wednesday that Japanese manufacturers turned more confident about business conditions in October and the sentiment index rose from 4 in September to 7 this month.
- The survey, however, indicated that Japanese manufacturers remained wary about the pace of China’s economic recovery and the service sector’s mood eased, reflecting patchy economic conditions in Japan.
- The US Dollar extends its consolidative price move near a seven-week top amid diminishing odds for a more aggressive policy easing by the Federal Reserve and does little to influence the USD/JPY pair.
- Traders now look forward to the release of September FOMC meeting minutes for some impetus, ahead of the US Consumer Price Index and the Producer Price Index on Thursday and Friday, respectively.
Technical Outlook: USD/JPY needs to surpass the 148.60 hurdle for bulls to seize near-term control
From a technical perspective, the emergence of some dip-buying on Tuesday comes on the back of last week’s move beyond the 50-day Simple Moving Average (SMA) for the first time since mid-July and favors bullish traders. Moreover, spot prices now seem to have found acceptance above the 148.00 mark, or the 38.2% Fibonacci retracement level of the July-September downfall. This, along with the fact that oscillators on the daily chart have been gaining positive traction, suggests that the path of least resistance for the USD/JPY pair is to the upside. Any further move up, however, might confront some resistance near the 148.70 zone ahead of the 149.00 round figure. Some follow-through buying beyond the weekly top, around the 149.10-149.15 region, will reaffirm the positive outlook and allow the pair to reclaim the 150.00 psychological mark.
On the flip side, the overnight swing low, around the 147.35-147.30 region, now seems to protect the immediate downside ahead of the 147.00 mark. A convincing break below the latter could drag the USD/JPY pair to the 146.45 intermediate support en route to the 146.00-145.90 region and the 145.00 confluence support. The latter comprises the 50-day SMA and the 23.6% Fibo. level, which if broken decisively will suggest that the recent recovery from the vicinity of mid-139.00s, or a 14-month low has run its course and shift the near-term bias in favor of bearish traders.
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 embarked in an ultra-loose monetary policy in 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. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
