The Japanese Yen (JPY) remains on the front foot against a broadly weaker US Dollar (USD) for the fourth straight day and drags the USD/JPY pair below the 150.00 psychological mark, or a two-week low during the Asian session on Friday. The global risk sentiment takes a hit amid concerns about economic risks stemming from escalating US-China trade tensions, a prolonged US government shutdown and geopolitical uncertainties. This, along with easing concerns about Japan’s fiscal health, turns out to be a key factor driving flows towards the safe-haven JPY.
Meanwhile, political uncertainty in Japan remains elevated following the collapse of the ruling Liberal Democratic Party’s (LDP) coalition with the Komeito. This could allow the Bank of Japan (BoJ) to further delay raising interest rates, which might hold back the JPY bulls from placing fresh bets. Investors, however, seem convinced that the BoJ will stick to its policy normalization path. This marks a significant divergence in comparison to bets for more rate cuts by the US Federal Reserve (Fed), which keeps the USD depressed and weighs on the USD/JPY pair.
Daily Digest Market Movers: Japanese Yen buying remains unabated amid global flight to safety, BoJ-Fed divergence
- The US and China started charging additional port fees on vessels linked to each other’s fleets. This comes after the US broadened tech restrictions and China outlined tighter export controls on rare earths, fueling concerns about an all-out trade war between the world’s two largest economies.
- US President Donald Trump said on Thursday that he will meet Russian President Vladimir Putin in Budapest, Hungary, to work toward ending the war in Ukraine. Meanwhile, Trump is set to meet Ukrainian President Volodymyr Zelenskyy at the White House later this Friday.
- In the meantime, Russia launched hundreds of drones and dozens of missiles, as well as glide bombs on Thursday, hitting gas facilities in eastern Ukraine. This keeps geopolitical risks in play and weighs on investors’ sentiment, driving some safe-haven flows towards the Japanese Yen.
- The ruling Liberal Democratic Party’s (LDP) split with the Komeito jeopardized Sanae Takaichi’s bid to become Japan’s first woman Prime Minister. Takaichi advocated the former Premier Shinzo Abe’s policy of heavy spending and monetary stimulus to support the economy.
- The latest political developments eased concerns about Japan’s fiscal health, and the reversal of the Takaichi trade turns out to be another factor underpinning the JPY. Apart from this, expectations for an imminent Bank of Japan rate hike by the year-end further benefits the JPY.
- BoJ Kazuo Ueda said this Friday that the impact of tariffs on global, US economy is being delayed which is keeping growth resilient. Ueda added that the BoJ will adjust degree of monetary support in accordance to the likelihood of our growth, inflation forecasts materializing.
- In contrast, traders have been pricing in two more rate cuts by the US Federal Reserve in 2025. The bets were reaffirmed by Fed Chair Jerome Powell’s dovish remarks on Tuesday, which keep the US Dollar depressed and drag the USD/JPY pair to the 150.00 psychological mark.
- The US Senate rejected a House Republican’s short-term funding bill to reopen the government for the tenth time on Thursday. The repeated failure to pass the stopgap bill underscores a deadlock in Congress and fuels concerns about the economic effect of a prolonged government closure.
- In the absence of any relevant US macro data, traders will continue to take cues from speeches by influential FOMC members to grab short-term opportunities. Nevertheless, the USD/JPY pair remains on track to register heavy weekly losses and seems poised to depreciate further.
USD/JPY seems vulnerable to slide further; break below the 150.00 pivotal support comes into play
From a technical perspective, spot prices find support near the 150.00 mark, also representing the 50% retracement level of the upswing from the monthly low. A convincing break below could make the USD/JPY pair vulnerable to accelerate the fall towards the 149.15 region, or the 61.8% Fibo. level. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for an extension of the recent pullback from the 153.30-153.25 region, or the highest level since February, touched earlier this month.
On the flip side, any further recovery might confront an immediate hurdle near the 150.70 region (38.2% Fibo. retracement level). This is followed by the 151.00 mark, which, if cleared, could trigger a short-covering rally and lift the USD/JPY pair to the 151.65 intermediate barrier en route to the 152.00 round figure. The momentum could extend further towards the 152.25 supply zone before bulls aim to reclaim the 153.00 mark and retest a multi-month peak, around the 153.25-153.30 region.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.