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- The Japanese Yen drifts lower on Monday amid the uncertainty over the BoJ rate hikes.
- Sustained USD buying interest turns out to be another factor lending support to USD/JPY.
- The divergent BoJ-Fed policy outlook could limit deeper losses for the lower-yielding JPY.
The Japanese Yen (JPY) slides to a two-week low against a broadly firmer US Dollar (USD) during the Asian session on Monday amid the Bank of Japan (BoJ) uncertainty. In fact, investors remain worried that domestic political uncertainty and economic headwinds stemming from US tariffs could give the BoJ more reasons to delay raising interest rates. This, along with a generally positive risk tone, is seen undermining the safe-haven JPY and contributing to the USD/JPY pair’s further recovery from its lowest level since July 7, touched last Wednesday.
Meanwhile, the BoJ is still expected to stick to its policy normalization path. This marks a significant divergence in comparison to the Federal Reserve’s (Fed) dovish signal, indicating the need for two more rate cuts by the end of this year, which might cap the USD and offer some support to the lower-yielding JPY. This, in turn, makes it prudent to wait for some follow-through buying before placing fresh bullish bets around the USD/JPY pair and positioning for any further appreciation. Traders now look to speeches by influential FOMC members for some impetus.
Japanese Yen bulls remain on the sidelines despite supportive fundamental backdrop
- The Bank of Japan left its Target Rate unchanged at 0.50%, as was expected, for its fifth straight meeting on Friday, though there were two dissenters voting for a rate hike. Investors, however, remain concerned that the BoJ could delay raising interest rates amid domestic political uncertainty and economic headwinds stemming from US tariffs.
- Japan’s Chief Cabinet Secretary and Prime Minister contender, Yoshimasa Hayashi, said this Monday that the BoJ is conducting monetary policy in a way that does not deviate much from the government’s thinking. If chosen as premier, will compile economic package to cushion blow from rising living costs, spending for disaster relief, Hayashi added.
- The People’s Bank of China (PBOC) kept its benchmark lending rates unchanged for the fourth straight month in September, in line with expectations. The one-year and five-year Loan Prime Rates (LPRs) stood at 3.00% and 3.50%, respectively. This reflects a cautious approach to monetary easing amid easing US-China trade tensions, despite signs of a slowdown.
- Meanwhile, the Federal Reserve last week lowered its benchmark rate for the first time since December and saw the need for two more rate cuts this year amid worries about a softening US labor market. This marks a significant divergence in comparison to the BoJ’s relative hawkish stance and could help limit deeper losses for the lower-yielding Japanese Yen.
- The US Dollar is seen building on last week’s goodish rebound from its lowest level since July 2022 amid a hawkish assessment of Fed Chair Jerome Powell’s remarks. Powell said that the Fed’s rate reduction move was a risk management cut and that he doesn’t feel the need to move quickly on interest rates. This remains supportive of the USD/JPY pair’s move up.
- There isn’t any relevant market-moving economic data due for release on Monday, either from Japan or the US. Hence, traders will closely scrutinize comments from a slew of influential FOMC members, including Powell. This, in turn, will drive the USD demand later during the North American session and provide some meaningful impetus to the currency pair.
USD/JPY might struggle to make it through 200-day SMA barrier near 148.60
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From a technical perspective, acceptance above the 148.00 round figure factors the USD/JPY bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and back the case for further appreciation. That said, any subsequent move up is more likely to confront stiff resistance near the 200-day Simple Moving Average (SMA), currently pegged near the 148.60 region. A sustained strength beyond will reaffirm the positive bias and allow spot prices to climb further beyond the 149.00 round figure, towards testing the monthly swing high, around the 149.20 zone.
On the flip side, the 147.70-147.65 region could offer immediate support, below which the USD/JPY pair could accelerate the slide towards the 147.00 mark. A convincing break below the latter would expose the 146.20 horizontal support before spot prices extend the downward trajectory towards the 145.50-145.45 region, or the lowest level since July 7, touched last Wednesday.
US Dollar Price Last 7 Days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.02% | 0.68% | 0.43% | -0.29% | 0.73% | 1.59% | 0.07% | |
| EUR | -0.02% | 0.68% | 0.35% | -0.31% | 0.75% | 1.52% | 0.04% | |
| GBP | -0.68% | -0.68% | -0.28% | -0.99% | 0.07% | 0.84% | -0.75% | |
| JPY | -0.43% | -0.35% | 0.28% | -0.73% | 0.35% | 1.14% | -0.37% | |
| CAD | 0.29% | 0.31% | 0.99% | 0.73% | 1.13% | 1.83% | 0.24% | |
| AUD | -0.73% | -0.75% | -0.07% | -0.35% | -1.13% | 0.77% | -0.75% | |
| NZD | -1.59% | -1.52% | -0.84% | -1.14% | -1.83% | -0.77% | -1.57% | |
| CHF | -0.07% | -0.04% | 0.75% | 0.37% | -0.24% | 0.75% | 1.57% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
