- USD/JPY loses ground around 143.55 in early Asian session on Tuesday.
- Fed rate cut keeps USD/JPY bearish.
- BoJ policymakers tempered speculation of another hike, which could limit JPY upside; rising geopolitical risks could boost JPY.
The USD/JPY pair is trading with slight losses near 143.55 during the early Asian session on Tuesday. The falling US Dollar (USD) continues to weigh on the pair. US Consumer Confidence for September is due to be released later in the day and Federal Reserve (Fed) Governor Michelle Bowman is scheduled to speak.
The Fed’s rate cut last week had been widely expected, although the decision to cut by 50 basis points (bps) was something of a surprise. Minneapolis Fed President Neel Kashkari said Monday that he thinks there should and will be additional interest rate cuts in 2024. However, Kashkari expects future cuts to be smaller than the one at the September meeting.
Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely to be needed next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said Monday that the U.S. economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to “normalize” as well. The dollar remains under pressure amid growing expectations that the Fed will cut additional interest rates in the remainder of 2024.
However, speculation that the Bank of Japan (BoJ) is in no hurry to raise interest rates could limit the Japanese Yen’s (JPY) upside. The BoJ left interest rates unchanged last week as policymakers need time to assess when it is necessary to raise borrowing costs further. “Most market players expected the next rate hike to take place in December, but Mr. Ueda’s comments made some think it may be delayed until early next year,” said Tomoichiro Kubota, senior market analyst at Matsui Securities Co.
Meanwhile, rising geopolitical tensions in the Middle East could boost safe-haven flows, benefiting the JPY. Bloomberg reported early Tuesday that Israel carried out airstrikes on targets in southern Lebanon, killing nearly 500 people in one of the bloodiest days of fighting in nearly two decades and fueling concerns of an all-out conflict.
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.
