- USD/JPY drops slightly below 161.00 as the US Dollar comes under pressure due to the firm Fed rate cut outlook.
- Fears of a BoJ intervention to support the Japanese Yen have intensified.
- Investors await US NFP report for fresh guidance on interest rates
The USD/JPY pair is extending its correction towards 161.80 in the European session on Friday. The asset is under pressure due to fears of a Japanese intervention in the currency domain due to excessive unilateral moves, which have led to a sharp weakness in the Japanese Yen and a massive sell-off in the US Dollar (USD) due to strong speculation that the Federal Reserve (Fed) will start lowering interest rates from the September meeting.
The Japanese Yen is struggling to gain ground despite Bank of Japan (BoJ) policymakers advocating for further monetary policy tightening. The weak Japanese Yen has boosted consumer inflation expectations as Japan’s exports have become globally competitive and import costs have risen significantly.
However, a sharp contraction in Total Household Spending in May has raised doubts about the BoJ’s path of rate hikes. The economic data unexpectedly declined by 1.8%. Economists had forecast household purchasing power to have grown at a slower pace of 0.1% from the previous release of 0.5%.
Meanwhile, the increased likelihood that the Fed will start cutting interest rates in September has boosted investors’ risk appetite. S&P 500 futures have posted nominal gains in Asian trading hours.
The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, has fallen further and has registered a fresh three-week low near 105.00. US 10-year Treasury bond yields are up near 4.36% ahead of the US (US) Non-Farm Payrolls (NFP) data, due out at 12:30 GMT.
In line with expectations, 190,000 workers were hired in June, significantly lower than the May reading of 272,000. The unemployment rate is estimated to have remained stable at 4%.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the spread between Japanese and US bond yields, and risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key to the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to political concerns of its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the BoJ and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.
The Bank of Japan’s stance of maintaining an ultra-loose monetary policy has led to an increase in policy divergence with other central banks, in particular with the US Federal Reserve. This favours the widening of the spread between US and Japanese 10-year bonds, which favours the Dollar against the Yen.
The Japanese Yen is often considered a safe haven investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency due to its perceived reliability and stability. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
