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30.07.2024, 03:36

Japanese Yen remains tepid as traders adopt caution ahead of BoJ decision

  • The Japanese Yen edges lower despite the hawkish sentiment surrounding the BoJ policy decision due on Wednesday.
  • The Bank of Japan is widely expected to raise interest rates by ten basis points.
  • CME FedWatch Tool suggests a 100% probability of at least a 25 basis points Fed rate cut in September.

The Japanese Yen (JPY) extends its losses against the US Dollar (USD) for the second successive day on Tuesday. Traders remain cautious ahead of the Bank of Japan’s (BoJ) policy meeting on Wednesday, which could potentially result in a rate hike. Markets are speculating that the BoJ may increase rates by ten basis points to 0.1% and is widely expected to announce its bond purchase tapering plans.

Japan’s Chief Cabinet Secretary Yoshimasa Hayashi stated on Tuesday that the Bank of Japan and the government will closely coordinate, but the specifics of monetary policy remain the BoJ's prerogative. Hayashi emphasized that the BoJ will work closely with the government to implement appropriate monetary policies aimed at achieving the inflation target.

The US Dollar may face challenges as the US Federal Reserve (Fed) is expected to keep rates unchanged on Wednesday. However, traders anticipate a Fed rate cut in September, with the CME FedWatch Tool indicating a 100% probability of at least a quarter percentage point cut. Additionally, signs of cooling inflation and easing labor market conditions in the United States have fueled expectations of three rate cuts by the Fed this year.

Daily Digest Market Movers: Japanese Yen declines despite hawkish sentiment surrounding BoJ

  • Japan's Unemployment Rate was 2.5% in June, slightly lower than market forecasts of 2.6% and the rate observed over the previous four months. This marks the lowest jobless rate since January.
  • Japan's top council has urged the government and the Bank of Japan to be mindful of the weak JPY when formulating policy. The council emphasized that the impact of a weak Yen and rising prices on consumption cannot be simply overlooked.
  • Reuters has published an extensive article on the Bank of Japan (BoJ) review of past policy, highlighting a significant shift in the central bank's approach to inflation. The key message from the review is that Japan is "ready for higher rates." However, the review will not result in changes to the price goal or policy framework.
  • On Friday, the US Personal Consumption Expenditures (PCE) Price Index rose by 2.5% year-over-year in June, down slightly from 2.6% in May, meeting market expectations. On a monthly basis, the PCE Price Index increased by 0.1% after being unchanged in May.
  • Japan's top currency diplomat, Masato Kanda, informed the G20 on Friday that foreign exchange (FX) volatility negatively impacts the Japanese economy. Kanda noted an increasing likelihood of a soft landing and emphasized the need to monitor the economy and implement necessary measures closely, according to Reuters.
  • Bank of America indicates that strong economic growth in the United States allows the Federal Open Market Committee (FOMC) to "afford to wait" before making any changes. The bank states that the economy "remains on robust footing" and continues to expect the Fed to start cutting rates in December.
  • The BlackRock Investment Institute noted in its mid-year outlook that Japan’s that the Bank of Japan will not raise interest rates at next week's meeting. Additionally, JP Morgan has also anticipated no rate hike from the Bank of Japan (BoJ) in July or at any point in 2024.

Technical Analysis: USD/JPY advances to near 154.00

USD/JPY trades around 154.00 on Tuesday. The daily chart analysis shows that the pair is consolidating within a descending channel, indicating a bearish bias. However, the 14-day Relative Strength Index (RSI) is slightly above 30, which could suggest a potential short-term rebound.

Immediate support is located near the lower boundary of the descending channel, around 153.00. A drop below this level could push the USD/JPY pair lower, possibly revisiting May's low of 151.86. Additional support may emerge at the psychological level of 151.00.

On the upside, the pair tests the "throwback support turned resistance" at around 154.50. Further resistance is anticipated at the nine-day Exponential Moving Average (EMA) of 155.13, with additional resistance near the upper boundary of the descending channel around 156.20.

USD/JPY: Daily Chart

Japanese Yen PRICE Today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the New Zealand Dollar.

  USD EUR GBP JPY CAD AUD NZD CHF
USD   0.03% 0.09% 0.05% 0.00% 0.03% -0.08% 0.06%
EUR -0.03%   0.06% 0.05% -0.01% -0.00% -0.11% 0.04%
GBP -0.09% -0.06%   0.00% -0.09% -0.06% -0.16% -0.03%
JPY -0.05% -0.05% 0.00%   -0.07% -0.03% -0.15% 0.00%
CAD 0.00% 0.00% 0.09% 0.07%   0.03% -0.08% 0.05%
AUD -0.03% 0.00% 0.06% 0.03% -0.03%   -0.12% 0.00%
NZD 0.08% 0.11% 0.16% 0.15% 0.08% 0.12%   0.14%
CHF -0.06% -0.04% 0.03% -0.01% -0.05% -0.01% -0.14%  

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 Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

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.

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