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Japanese Yen seems vulnerable near its lowest level since late July against USD

  • The Japanese Yen recovers a part of the overnight slide to a nearly three-month low against the USD.
  • Intervention fears and a softer risk tone underpin the JPY, though the BoJ uncertainty caps gains.
  • Bets for smaller Fed rate cuts, rising US bond yields boost the USD and offer support to USD/JPY.

The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Tuesday and reverses a part of the previous day’s slide to the lowest level since late July. The recent verbal intervention from Japanese authorities, along with a slight deterioration in the global risk sentiment, turn out to be key factors offering some support to the safe-haven JPY. The upside for the JPY, however, seems limited on the back of the uncertainty over the timing and pace of further rate hikes by the Bank of Japan (BoJ).

Meanwhile, concerns about the potential for rising deficit spending after the November 5 US Presidential election and bets for a less aggressive policy easing by the Federal Reserve (Fed) pushed the US Treasury bond yields to their highest levels in almost three months. This might further contribute to capping any meaningful appreciating move for the lower-yielding JPY. Apart from this, the underlying bullish tone around the US Dollar (USD) supports prospects for the emergence of some dip-buying around the USD/JPY pair. 

Daily Digest Market Movers: Japanese Yen draws support from intervention fears, bulls seem non-committed amid BoJ uncertainty

  • The Japanese Yen has attracted some buyers on Tuesday amid speculations about possible government intervention, especially after the recent fall below the 150.00 psychological mark against its American counterpart. 
  • Japan’s vice finance minister for international affairs, Atsushi Mimura, said last Friday that excess volatility in the FX market is undesirable and that authorities are closely watching FX moves with a high sense of urgency.
  • The Bank of Japan Governor Kazuo Ueda signaled last week that the central bank is not in a rush to raise interest rates further and emphasized the need to focus on the economic impact of unstable markets and overseas risks.
  • Furthermore, dovish comments from Japanese Prime Minister Shigeru Ishiba add a layer of uncertainty over the new political leadership’s preference for the monetary policy, which is likely to act as a headwind for the JPY. 
  • Meanwhile, the US Dollar jumped to its highest level since early August amid growing conviction that the Federal Reserve will proceed with modest rate cuts over the next year as the US economy remains relatively healthy. 
  • Dallas Fed President Lorie Logan said on Monday that she expects gradual rate cuts if the economy meets forecasts and that the US central bank will need to be nimble with monetary policy choices amid risks to inflation target. 
  • Separately, Minneapolis Fed President Neel Kashkari noted that investors should expect a modest pace of rate cuts over the next few quarters, though evidence of quick labor market weakening could lead to faster rate cuts.
  • Adding to this, Kansas Fed President Jeffrey Schmid said that the US central bank must prevent significant fluctuations in interest rates and urged careful, steady, and purposeful methods for reducing interest rates.
  • Meanwhile, expectations that Donald Trump’s win in the November 5 US Presidential election could see the launch of further potentially inflation-generating tariffs triggered the overnight selloff in US government debt.
  • The yield on the rate-sensitive 2-year US government bond closed at its highest since August 19 on Monday, while the benchmark 10-year US Treasury yield touched the highest since July 26, underpinning the US Dollar.

Technical Outlook: USD/JPY could accelerate the positive move and build on a one-month-old uptrend once the 151.00 hurdle is cleared 

From a technical perspective, any subsequent slide now seems to find immediate support near the 150.30-150.25 region ahead of the 150.00 psychological mark. A convincing break below the latter could make the USD/JPY pair vulnerable to an accelerated drop further towards the 149.65-149.60 intermediate support en route to the 149.10-149.00 area. Some follow-through selling will suggest that the positive move witnessed over the past month or so has run its course and shift the near-term bias in favor of bearish traders. 

On the flip side, bulls might now wait for a sustained strength above the 151.00 mark before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in positive territory, the USD/JPY pair might then climb to the 151.60 area before aiming to reclaim the 152.00 round figure. The momentum could extend further towards the 152.65-152.70 region en route to the 153.00 mark.

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.