- The Japanese Yen struggles to lure buyers amid reduced BoJ rate hike bets.
- Japan’s National CPI report does little to provide any meaningful impetus.
- Traders seem reluctant ahead of Japan’s upper house elections on Sunday.
The Japanese Yen (JPY) ticks lower against its American counterpart during the Asian session on Friday and remains well within striking distance of over three-month low touched earlier this week. The growing acceptance that the Bank of Japan (BoJ) would forgo raising interest rates this year continues to act as a headwind for the JPY. Apart from this, the risk-on environment undermines the safe-haven JPY, which moves little following the release of the latest consumer inflation figures from Japan.
The JPY bears, however, might refrain from placing aggressive bets and opt to move to the sidelines ahead of Japan’s upper house election over the weekend. Furthermore, dovish comments from Federal Reserve (Fed) Governor Christopher Waller keep the US Dollar (USD) below its highest level since June 23, touched on Thursday. However, bets that the Fed would delay cutting rates might continue to offer support to the buck and suggest that the path of least resistance for the USD/JPY pair is to the upside.
Japanese Yen bears seem non-committed ahead of Japan’s upper house election
- House of Councillors elections are scheduled to be held in Japan this Sunday, on July 20. This is seen as a critical mid‑term test for Prime Minister Shigeru Ishiba’s embattled coalition of the Liberal Democratic Party (LDP) and Komeito.
- Recent media polls suggest that the shaky minority government will likely lose its majority, heightening the risk of political instability and stoking fears of an increase in debt, amid calls from the opposition to boost spending and cut taxes.
- This comes at a time when Japan is struggling to strike a trade deal with the US and might complicate the Bank of Japan’s (BoJ) policy normalization path, which continues to undermine the Japanese Yen amid the upbeat market mood.
- Meanwhile, the latest data released by the Japan Statistics Bureau this Friday showed that the National Consumer Price Index (CPI) rose by 3.3% YoY in June and the gauge excluding fresh food prices arrived at 3.3%, down from 3.7% prior.
- Furthermore, CPI ex Fresh Food and Energy rose 3.4% during the reported month compared to the reading of 3.3% in May. The data offers some relief to the BoJ, which is set to update its inflation projections at the July policy meeting.
- Meanwhile, traders have been scaling back their expectations for an immediate interest rate cut by the Federal Reserve amid the evidence that the Trump administration’s increasing import taxes are passing through to consumer prices.
- Fed governor Adriana Kugler said on Thursday that the still-restrictive policy stance is important to keep longer-run inflation expectations anchored, and it will be appropriate to hold the policy rate at the current level for some time.
- Atlanta Fed President Raphael Bostic, in an interview with the Wall Street Journal, noted that rate cuts might be difficult in the short run and that the economic outlook remains highly uncertain as tariff adjustments could take months.
- San Francisco Fed President Mary Daly said that despite the overall progress on inflation, the central bank still has some work to do on inflation. Whether the rate cut happens in July or September isn’t most relevant, Daly added further.
- Separately, Fed Governor Christopher Waller said that rising risks to the economy favour easing the policy rate and the central bank should cut its interest rate target in July amid evidence that the labour market is growing weaker.
- This, in turn, drags the US Dollar away from a fresh monthly high, touched on Thursday following the release of upbeat US macro data, and keeps the USD/JPY pair below its highest level in more than three months.
- Traders now look to the release of Preliminary Michigan US Consumer Sentiment and Inflation Expectations, and the US housing market data – Building Permits and Housing Starts – for some impetus later this Friday.
USD/JPY needs to surpass 149.00 for bulls to retain short-term control
From a technical perspective, the USD/JPY pair showed some resilience below the 100-hour Simple Moving Average (SMA) earlier this week, and the subsequent move up favors bullish traders. Moreover, oscillators are holding comfortably in positive territory and are still away from being in the overbought zone. However, the overnight failure to build on the momentum beyond the 149.00 mark warrants some caution. Hence, it will be prudent to wait for some follow-through buying beyond the 149.15-149.20 region, or a multi-month peak, before positioning for a move towards reclaiming the 150.00 psychological mark.
On the flip side, the 148.20-148.25 region, or the 100-hour SMA, could offer immediate support ahead of the 148.00 mark. Some follow-through selling, leading to a slide below the 147.70 area, could make the USD/JPY pair vulnerable to accelerate the fall towards testing sub-147.00 levels. Acceptance below the latter might shift the bias in favor of bearish trades and drag spot prices to the 146.60 intermediate support en route to the 146.20 area, the 146.00 mark, and the 100-day SMA, currently pegged near the 145.80 region.
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 BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, 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 supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
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.