Created
: 2025.01.30
2025.01.30 11:27
The Japanese Yen (JPY) remains on the front foot for the second successive day against its American counterpart and drags the USD/JPY pair below mid-154.00s during the Asian session on Thursday. Investors now seem convinced that the Bank of Japan (BoJ) will hike interest rates further, which, in turn, is seen underpinning the JPY. Moreover, the recent narrowing of the US-Japan yield differential turns out to be another factor driving flows towards the lower-yielding JPY.
Meanwhile, concerns that US President Donald Trump's trade policies could escalate into a global trade war might hold back the JPY bulls from placing aggressive bets. Furthermore, the Federal Reserve's (Fed) hawkish pause on Wednesday could act as a tailwind for the US Dollar (USD) and limit losses for the USD/JPY pair. Moving ahead, the highly anticipated European Central Bank (ECB) meeting might elevate market volatility and influence demand for the safe-haven JPY.
The emergence of fresh sellers near the 156.00 round figure and the subsequent fall below the 155.00 psychological mark confirms a breakdown through a multi-month-old ascending channel support. Moreover, oscillators on the daily chart have been gaining negative traction, suggesting that the path of least resistance for the USD/JPY pair remains to the downside. Hence, some follow-through weakness below the 154.00 mark, towards retesting a multi-week low around the 153.70 region touched on Monday, looks like a distinct possibility.
On the flip side, attempted recovery might now confront resistance near the 155.00 round figure ahead of the 155.35-155.40 region. Any further move up might still be seen as a selling opportunity and remain capped near the 156.00 mark. This is followed by the weekly top, around the 156.25 area, which should act as a key pivotal point. A sustained strength beyond the latter might trigger a fresh bout of a short-covering rally and lift the USD/JPY pair to the 156.70-156.75 region en route to the 157.00 round figure and the 157.60 horizontal barrier.
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.
Created
: 2025.01.30
Last updated
: 2025.01.30
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