USD/JPY: A Look at the Forex Market
Positive Start for USD/JPY
- USD/JPY kicks off the new week on a positive note and stalls Friday’s pullback from a multi-week top.
- The upbeat market mood, Japan’s politics and mixed data from Japan undermine the safe-haven JPY.
- The divergent BoJ-Fed policy expectations keep a lid on any further appreciating move for the pair.
The USD/JPY pair attracts some dip-buyers at the start of a new week and reverses a part of Friday’s sharp retracement slide from the 146.50 area or over a three-week high. Spot prices, however, retreat a few pips in the last hour and currently trade around mid-142.00s, up less than 0.25% for the day.
Market Factors Driving Movement
The already upbeat market mood gets an additional boost in reaction to more stimulus announced by China over the weekend. In fact, the People’s Bank of China (PBOC) on Sunday said it would tell banks to lower mortgage rates for existing home loans. Furthermore, Japan’s incoming Prime Minister (PM) Shigeru Ishiba said that the Bank of Japan’s (BoJ) monetary policy must remain accommodative to underpin a fragile economic recovery. This, along with news that the new PMI is planning a general election for October 27 and mixed Japanese economic data, undermines the Japanese Yen (JPY) and is seen lending support to the USD/JPY pair.
A government report published earlier today showed that Japan’s Retail Sales rose 2.8% in August from a year earlier as compared to market expectations for an increase of 2.3% and the 2.7% growth registered in the previous month. This, however, was offset by dismal Industrial Production data, which contracted more than anticipated, by 3.3% during the reported month and did little to impress the JPY bulls. That said, the growing market conviction that the BoJ will hike interest rates again by the end of this year helps limit any meaningful JPY losses. Apart from this, subdued US Dollar (USD) price action contributes to capping the USD/JPY pair.
Impact of Policy Expectations
The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near its lowest level since July 2023 touched on Friday amid bets for a more aggressive policy easing by the Federal Reserve (Fed). This, in turn, warrants some caution before positioning for a further intraday appreciating move for the USD/JPY pair. Traders now look to the release of the official Chinese PMI prints for some impetus. The focus, however, will be on Fed Chair Jerome Powell’s speech later during the US session.
Japanese Yen FAQs
Here are some frequently asked questions about the Japanese Yen:
What Drives the Value of the Japanese Yen?
- The value of the Japanese Yen (JPY) is broadly determined by the performance of the Japanese economy, the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
BoJ’s Influence on the Yen
- The Bank of Japan’s moves are key for the Yen, with its ultra-loose monetary policy causing the Yen to depreciate against its main currency peers.
Policy Divergence and 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, favoring the US Dollar against the Japanese Yen.
Yen as a Safe-Haven Investment
- The Japanese Yen is often seen as a safe-haven investment, meaning that in times of market stress, investors are more likely to put their money in the Japanese currency due to its reliability and stability.