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- Japanese Yen remains on front foot amid hopes of a BoJ pivot, despite weaker GDP print
Japanese Yen remains on front foot amid hopes of a BoJ pivot, despite weaker GDP print
- The Japanese Yen surged to a four-month top against the USD after BoJ Governor Ueda’s comments on Thursday.
- The JPY bulls largely shrugged off data showing that Japan’s economy contracted more than initially estimated in Q3.
- Fed rate cut bets trigger a sharp USD corrective slide from a two-week high and further exert pressure on USD/JPY.
The Japanese Yen (JPY) rallied over 3.5% intraday, to its strongest level in four months against the US Dollar (USD) after Bank of Japan (BoJ) Governor Kazuo Ueda spoke about options when considering a move away from negative interest rates on Thursday. Ueda's comments reinforced expectations that the BoJ will wind down its ultra-dovish, stimulus-heavy policies in 2024. This, along with a sharp USD pullback from a two-week high touched on Wednesday, led to the USD/JPY pair's overnight slump to its lowest level since August.
Ueda, however, emphasized the necessity of continuing the loose monetary policy in the near term amid signs that the Japanese economy was cooling further. Apart from this, the risk-on rally in the US equity markets forced the safe-haven JPY to trim a part of its strong intraday gains and allowed the USD/JPY pair to rebound nearly 250 pips from the vicinity of mid-141.00s to end the day around the 144.00 round figure.
The USD/JPY pair, however, struggles to capitalize on the recovery move and meets with a fresh supply during the Asian session on Friday. Firming expectations about an imminent shift in the BoJ’s policy shift continue to underpin the JPY, which seems unaffected by a downward revision to Japan’s third-quarter GDP print. Apart from this, hopes for a dovish Federal Reserve (Fed) keep the USD bulls on the defensive and contribute to the fall.
Daily Digest Market Movers: Japanese Yen retains its bullish bias in the wake of BoJ Governor Ueda’s hawkish message on Thursday
- The Japanese Yen recorded its biggest one-day rally against the US Dollar on Thursday in reaction to Bank of Japan Governor Kazuo Ueda's faintly hawkish messaging about ending the ultra-loose monetary policy.
- Ueda pinned down the spring wage negotiations as the potential turning point on policy and told PM Kishida that the central bank hopes to see whether wages will rise sustainably and whether wage rises will push up service prices.
- Ueda earlier said that they have not yet reached a situation in which they can achieve the price target sustainably, stably and with sufficient certainty, and noted that stimulus measures are supporting the Japanese economy.
- The JPY bulls, meanwhile, shrugged off the dismal domestic data released on Friday, which showed that Japan's economy contracted by a 2.9% YoY pace in the third quarter, worse than the initial estimate of a 2.1% drop.
- On a quarterly basis, Japan's GDP shrank by 0.7% during the July-September period as compared to the 0.5% fall reported originally and a median forecast for a 0.5% decline.
- Growing acceptance that the Federal Reserve is done raising interest rates and may start easing its policy by the first half of 2024 prompted fresh USD selling, contributing to the USD/JPY pair's overnight steep decline.
- Investors now look forward to the crucial US NFP report, which is expected to show that the economy added 180K jobs in November and the unemployment rate held steady at 3.9%, for some meaningful impetus.
Technical Analysis: USD/JPY languishes near multi-month low, bears turn cautious amid oversold RSI on the daily chart
From a technical perspective, spot prices on Thursday showed some resilience below the 61.8% Fibonacci retracement level of the July-November rally and the very important 200-day Simple Moving Average (SMA). The subsequent recovery, however, struggles to find acceptance above the 144.00 round figure, which should now act as a key pivotal point for short-term traders. With the Relative Strength Index (RSI) on the daily chart flashing oversold conditions, a sustained strength beyond might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 145.00 psychological mark.
On the flip side, the Asian session low, around mid-142.00s, coinciding with the 61.8% Fibo. level now seems to protect the immediate downside. This is closely followed by the 200-day SMA, currently near the 142.30 region, below which the USD/JPY pair could slide below the 142.00 mark and retest the multi-month trough, around the 141.60 region touched the previous day. The downward trajectory could get extended further towards the 141.00 mark en route to the 140.80-140.75 zone.
Japanese Yen price this week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.91% | 0.96% | 0.69% | 1.17% | -2.09% | 0.74% | 0.82% | |
| EUR | -0.93% | 0.06% | -0.21% | 0.28% | -3.04% | -0.15% | -0.09% | |
| GBP | -0.99% | -0.05% | -0.26% | 0.22% | -3.08% | -0.22% | -0.14% | |
| CAD | -0.70% | 0.21% | 0.27% | 0.49% | -2.82% | 0.06% | 0.12% | |
| AUD | -1.19% | -0.28% | -0.22% | -0.49% | -3.32% | -0.43% | -0.37% | |
| JPY | 2.02% | 2.95% | 3.16% | 2.77% | 3.22% | 2.81% | 2.85% | |
| NZD | -0.75% | 0.17% | 0.22% | -0.05% | 0.44% | -2.85% | 0.08% | |
| CHF | -0.84% | 0.09% | 0.14% | -0.12% | 0.36% | -2.93% | -0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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 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.
How does the differential between Japanese and US bond yields impact the Japanese Yen?
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.
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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