- USD/JPY remains on the defensive near 153.70 at the start of the Asian session on Thursday.
- A higher probability of a BoJ rate hike could support the JPY in the near term.
- Mixed US S&P PMI for July and dovish Fed comments likely to weigh on the Dollar.
The USD/JPY pair remains under some selling pressure around the three-month low of 153.70 on Thursday during the early Asian session. Mounting bets that the Bank of Japan (BoJ) will cut interest rates next week provide some support to the Japanese Yen (JPY) for the time being.
The BoJ is likely to discuss whether to raise interest rates again next week and present a plan to roughly halve bond purchases over the next few years. “This may be due to the fact that ahead of the BoJ interest rate decision next week, more and more analysts see the risk that a rate hike could happen now rather than in September. It will also be interesting to see what the BoJ says about its bond purchases and whether it might taper them off gradually,” said Commerzbank FX strategist Antje Praefcke. In addition, possible interventions in the foreign exchange (FX) market by Japanese authorities could limit the pair’s upside.
Multiple headwinds from the US, including a mixed US S&P Purchasing Managers’ Index (PMI) for July and a dovish stance from the Federal Reserve (Fed), are likely to exert some selling pressure on the USD. The US S&P Global Composite PMI rose to 55.0 in July from 54.8 in June. Meanwhile, the S&P Global Manufacturing PMI fell to 49.5 from 51.6 in the same period, below the market consensus of 51.7. The Services PMI rose to 56.0 from 55.3, stronger than the expectation of 54.4.
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.
