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Japanese Yen rebounds amid intervention fears and risk-off sentiment | FXStreet

The Japanese Yen (JPY) stages an intraday recovery from the lowest level since early February, touched against its American counterpart during the Asian session on Tuesday, though it lacks follow-through buying or bullish conviction. The recent fall in the JPY prompted some verbal intervention from Japan’s Finance Minister Satsuki Katayama. This, along with the prevalent risk-off mood, provides a modest lift to the safe-haven JPY. Apart from this, the lack of follow-through US Dollar (USD) buying drags the USD/JPY pair below the 155.00 psychological mark in the last hour.

Meanwhile, reports that Japan’s Prime Minister Sanae Takaichi plans tax cuts to boost consumption add to concerns about the government’s long-term fiscal health. This comes on top of Japan’s weak Q3 GDP print on Monday and could put additional pressure on the Bank of Japan (BoJ) to delay raising interest rates, which could act as a headwind for the JPY. Moreover, less dovish Federal Reserve (Fed) expectations could support the buck and the USD/JPY pair. Traders might also wait for the FOMC Minutes and the delayed US Nonfarm Payrolls (NFP) report this week.

Japanese Yen bears turn cautious amid intervention fears

  • Nikkei Asia reported late Monday that Japan’s Prime Minister Sanae Takaichi will launch tax-reform talks this week, aiming to cut certain taxes to stimulate investment and consumption while raising others and eliminating breaks to fill the fiscal hole.
  • The report added that the ruling Liberal Democratic Party (LDP) and its coalition partner will discuss next year’s tax package, including the agreed-upon removal of gasoline and diesel surcharges, a move that will leave a ¥1.5 trillion revenue gap.
  • Government data released on Monday showed that Japan’s economy contracted for the first time in six quarters during the July-September period. This tempers bets that the Bank of Japan will hike rates soon amid increasing political resistance.
  • Japan’s Finance Minister Satsuki Katayama said at a regular news conference this Tuesday that we have been alarmed by the recent one-sided, rapid moves in the foreign exchange market, fueling speculations about government intervention.
  • In fact, Katayama added that the government will thoroughly monitor for excessive fluctuations and disorderly movements in the forex market, with a high sense of urgency, which holds back traders from placing fresh bearish bets around the JPY.
  • Several Fed officials recently signaled caution on further monetary easing amid the lack of economic data, forcing investors to scale back their expectations for a rate cut in December. This acts as a tailwind for the US Dollar and the USD/JPY pair.
  • The USD bulls, however, seem reluctant and opt to wait for more cues about the Fed’s rate-cut path. Hence, the market focus will remain glued to the FOMC Minutes on Wednesday and the delayed US Nonfarm Payrolls report on Thursday.
  • In the meantime, traders will scrutinize speeches from influential FOMC members later this Tuesday, which should continue to play a key role in driving the USD demand and producing short-term trading opportunities around the USD/JPY pair.

USD/JPY corrective slide below 155.00 is likely to be short-lived

From a technical perspective, the overnight close above the 155.00 psychological mark could be seen as a fresh trigger for the USD/JPY bulls. Furthermore, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone, suggesting that the path of least resistance for spot prices remains to the upside. Hence, some follow-through strength beyond the 155.60-155.65 intermediate hurdle, towards reclaiming the 156.00 round figure, looks like a distinct possibility.

On the flip side, any corrective pullback below the 155.00 mark is more likely to find decent support and attract fresh buyers near the 154.50-154.45 region. The latter should act as a key pivotal point, which, if broken decisively, might prompt some technical selling and drag the USD/JPY pair to the 154.00 round figure. The downfall could extend further towards the next relevant support near the 153.60-153.50 region en route to the 153.00 mark.

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.