- USD/JPY advances near 155.85 in Wednesday’s early Asian session, up 0.24% on the day.
- The higher possibility of a BoJ interest rate hike might support the Japanese Yen.
- Investors will monitor the US preliminary S&P Global PMIs for June, which is due later on Wednesday.
The USD/JPY pair trades on a stronger note around 155.85, snapping the two-day losing streak during the early Asian session on Wednesday. The upside of the pair might be limited amid the growing speculation that the Bank of Japan (BoJ) would continue hiking interest rates to boost the currency.
A senior official in the ruling party, Toshimitsu Motegi, said that the central bank should more clearly communicate its resolve to normalize monetary policy, including through steady interest rate hikes, per Reuters. The expectation that the BoJ will tighten its monetary policy further might lift the Japanese Yen (JPY) against the US Dollar (USD) for the time being.
However, many analysts believe that the Japanese central bank is likely to maintain an accommodative monetary environment as much as possible. JP Morgan analysts have expected no rate hikes from the BoJ in July or the remainder of 2024. The BoJ monetary policy meeting next week will be a closely watched event.
On the other hand, the Federal Reserve (Fed) is expected to cut the interest rate in September, with the market pricing in 96% odds of at least a quarter-point rate cut, according to the CME FedWatch Tool. Investors will take more cues from the key US economy data this week. The US preliminary S&P Global PMIs for June are due on Wednesday. The Manufacturing PMI is expected to improve to 51.7 in July from 51.6 in June, while the Services PMI is estimated to ease slightly to 54.4 in July from 55.3 in the previous reading. Later this week, the US Q2 Gross Domestic Product (GDP) and the Personal Consumption Expenditure Price Index (PCE) data for June will be in the spotlight.
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 current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
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 supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
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.