- The Japanese Yen jumps to over a one-month top against the USD amid BoJ rate hike bets.
- Expectations for a further narrowing of the Japan-US rate differential also underpin the JPY.
- A positive risk tone might cap the safe-haven JPY amid worries about Trump’s trade tariffs.
The Japanese Yen (JPY) regains strong positive traction after data released earlier this Wednesday showed a rise in Japan’s real wages and lifted bets that the Bank of Japan (BoJ) will raise interest rates again. Adding to this, the prospects for further policy easing by the Federal Reserve (Fed), which would result in the narrowing of the rate differential between Japan and the US, turn out to be another factor underpinning the lower-yielding JPY.
This, along with a modest US Dollar (USD) downtick, drags the USD/JPY pair to the 153.00 neighborhood, or its lowest level since December 13 during the Asian session. That said, worries that Japan would also be an eventual target for US President Donald Trump’s trade tariffs and the upbeat market mood could act as a headwind for the safe-haven JPY. Nevertheless, the fundamental backdrop seems tilted firmly in favor of the JPY bulls.
Japanese Yen builds on strong intraday gains amid rising bets for more BoJ rate hike
- Preliminary government data released earlier this Wednesday revealed that inflation-adjusted real wages in Japan climbed 0.6% from the year before in December. Adding to this, the previous month’s reading was revised to show a 0.5% rise against a 0.3% drop reported originally.
- Meanwhile, the consumer inflation rate that the government uses to calculate real wages accelerated from November’s 3.4% to 4.2%, or the fastest pace since January 2023. This, in turn, supports prospects for further policy tightening by the Bank of Japan and lifts the Japanese Yen.
- BoJ’s Director General of monetary affairs Kazuhiro Masaki said that the central bank sees underlying inflation gradually heading toward 2% and services prices are rising moderately.Price rises post-pandemic have been driven mostly by cost push factors, Masaki added further.
- A survey compiled by S&P Global Market Intelligence showed that Japan’s service activity expanded for a third straight month in January. In fact, the au Jibun Bank Service Purchasing Managers’ Index (PMI) rose from 50.9 to 53.0 in January, marking the highest level since September 2024.
- The US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday that the number of job openings on the last business day of December stood at 7.6 million. This was below the 8.09 million openings in November and expectations of 8 million.
- The data pointed to a slowdown in the job market, which could allow the Federal Reserve to cut rates further. This marks a big divergence in comparison to the hawkish BoJ expectations and drags the USD/JPY pair to over a one-month low during the Asian session on Wednesday.
- Fed Vice Chairman Philip Jefferson said on Tuesday that there is no need to hurry further rate cuts as a strong economy makes caution appropriate. Interest rates are likely to fall over the medium term and the Fed faces uncertainty around government policy, Jefferson added further.
- US President Donald Trump offered concessions to Canada and Mexico by delaying the 25% trade tariffs for 30 days. Adding to this hopes for a trade breakthrough between the US and China help to ease trade war fears and remain supportive of the prevalent risk-on environment.
- Investors remain worried that Japan would also be an eventual target for Trump’s trade tariffs. Japan’s Prime Minister Shigeru Ishiba is set to meet with Trump later this week and their conversation may provide more hints about the risk as Japan has a large trade surplus with the US.
- Traders now look forward to the US economic docket – featuring the release of the ADP report on private-sector employment and the ISM Services PMI. The data provide some impetus to the US Dollar ahead of the closely-watched US Nonfarm Payrolls report on Friday.
USD/JPY remains on track to challenge 100-day SMA support, around the 152.45 area
From a technical perspective, the intraday breakdown and acceptance below the 154.00 mark could be seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have been gaining negative traction and are still away from being in the oversold territory. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the downside and supports prospects for a further depreciating move. Hence, a subsequent fall towards the 153.00 mark, en route to the 100-day Simple Moving Average (SMA), currently pegged near the 152.45 region, looks like a distinct possibility.
On the flip side, any attempted recovery might now confront immediate resistance near the 154.00 round figure. Some follow-through buying, however, might prompt a short-covering rally and lift the USD/JPY pair to the 154.70-154.75 intermediate hurdle en route to the 155.00 psychological mark. Meanwhile, a further move up could be seen as a selling opportunity and remain capped near the 155.25-155.30 region. The latter should act as a key pivotal point, which if cleared decisively will negate the negative outlook and shift the near-term bias in favor of bullish traders.
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.
