Created
: 2025.06.03
2025.06.03 11:33
The Japanese Yen (JPY) retreated sharply from a one-week low touched against its American counterpart during the Asian session on Tuesday. Comments from a former Bank of Japan (BoJ) board member Makoto Sakurai, along with requests made at a meeting between the central bank and financial institutions on May 20-21, suggest that the BoJ might proceed slowly in reducing its balance sheet. Furthermore, this underscores the challenge the BoJ faces in removing its massive monetary stimulus. Adding to this, a modest recovery in the global risk sentiment prompts traders to lighten their JPY bullish bets.
Any meaningful JPY depreciation, however, still seems elusive in the wake of the growing acceptance that the BoJ will continue raising interest rates amid the broadening inflation in Japan. The bets were reaffirmed by BoJ Governor Kazuo Ueda's remarks in the Japanese parliament. This, along with rising trade and geopolitical tensions, could support the safe-haven JPY. Meanwhile, hawkish BoJ expectations mark a big divergence in comparison to the market pricing of at least two rate cuts by the Federal Reserve (Fed) this year, which should cap any US Dollar (USD) recovery and benefit the lower-yielding JPY.
From a technical perspective, the overnight breakdown below the 143.65-143.60 horizontal support, which coincided with the 100-hour Simple Moving Average (SMA), was seen as a key trigger for the USD/JPY bears. The said area should now keep a lid on any further intraday move-up. A sustained strength beyond, however, might trigger a short-covering rally and lift spot prices to the 144.00 mark. The momentum could extend further, though it runs the risk of fizzling out near the 144.40-144.45 supply zone.
On the flip side, weakness back below the 143.00 mark could find some support near the Asian session low, around the 142.40-142.35 region. This is followed by the 142.10 area, or last week's swing low, below which the USD/JPY pair could resume its recent downfall from the May monthly swing high. Spot prices might then weaken to the next relevant support near the 141.60 area before eventually dropping to sub-141.00 levels.
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
: 2025.06.03
Last updated
: 2025.06.03
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