- The Japanese Yen loses ground amid the stronger USD in Wednesday’s Asian session.
- Growing expectations of the BoJ rate hike in December and safe-haven flows might help limit the JPY’s losses.
- Investors brace for Japan’s Jibun Bank Services PMI, US economic data and Fed’s Powell speech on Wednesday.
The Japanese Yen (JPY) trades in negative territory on Wednesday. The upbeat US Manufacturing PMI data and job openings data this week indicated that the US economy remains robust, lifting the Greenback. However, traders are increasingly confident that the Bank of Japan (BOJ) may hike interest rates this month. This, in turn, might support the JPY in the near term.
Furthermore, the ongoing political uncertainty in France, the political tension in South Korea and escalating geopolitical risks in the Middle East could boost the safe-haven flows, benefitting the JPY against the USD. Investors will keep an eye on the final reading of Japan’s Jibun Bank Services PMI, which is due later on Wednesday. On the US docket, the ADP Employment Change report, final S&P Global Services PMI, ISM Services PMI and the Fed’s Beige Book will be released. The Federal Reserve’s (Fed) Chair Jerome Powell is scheduled to speak later in the same day.
Japanese Yen edges lower amid the firmer US Dollar broadly
- Japan’s Nikkei 225 futures opened up 0.15% and the South Korean Kospi opened down -1.97% after martial law was proposed then rejected by parliamentary action.
- The final reading of Japan’s Jibun Bank Services PMI improved to 50.5 in November versus 50.2 prior. This reading came in stronger than the 50.2 expected.
- The BoJ Governor Kazuo Ueda said on Saturday that the central bank will adjust the degree of monetary easing at the appropriate time if it becomes confident that the underlying inflation rises toward 2%.
- The US JOLTS Job Openings rose to 7.74 million in October, compared to 7.37 million openings in September, according to the US Bureau of Labor Statistics (BLS) on Tuesday. This reading came in higher than the market expectation of 7.48 million.
- Fed Governor Adriana Kugler said the labor market remains solid, and inflation appears to be on a sustainable path to the Fed’s 2% target. However, Kugler underscored that the central bank’s policy decisions are not on a preset course.
- San Francisco Fed President Mary Daly stated that an interest rate cut in the December meeting isn’t certain but remains on the table for policymakers.
- Chicago Fed President Austan Goolsbee noted he expects interest rates will “come down a fair amount from where they are now” over the next year, per Bloomberg.
USD/JPY turns bearish in the longer term
The USD/JPY pair keeps the bearish vibe on the daily chart as the pair remains capped below the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) stands below the midline near 38, indicating the further downside for the pair looks favorable.
A break below the lower Bollinger Band of 149.33 could set off an even steeper slide for the pair to 147.18, the high of September 2. Further south, the next support level is seen at 143.62, the low of August 6.
On the brighter side, the crucial resistance level emerges at the 150.00 psychological mark. Sustained upside momentum could even take it all the way to the next hurdle at 154.70, the high of November 6. A decisive break above the mentioned level could attract enough bullish energy to lift USD/JPY back up to 155.89, the high of November 20.
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.
