USD/JPY weakens to near 155.00 amid BoJ rate hike bets, US data awaited
- USD/JPY softens to near 155.10 in Tuesday’s early Asian session.
- The BoJ is widely expected to raise interest rates on Friday, supporting the Japanese Yen.
- The US Retail Sales, PMI and employment reports will be the highlights on Tuesday.
The USD/JPY pair loses traction to around 155.10 during the early Asian session on Tuesday. The Japanese Yen (JPY) edges higher against the US Dollar (USD) amid the expectation that the Bank of Japan (BoJ) will raise interest rates at the upcoming policy meeting on Friday. Traders will closely monitor key US economic data, including Nonfarm Payrolls (NFP), Retail Sales, and Purchasing Managers Index (PMI), which are due later on Tuesday.
Rising bets for an imminent rate hike by the BoJ provide some support to the JPY and create a headwind for the pair. Traders have been pricing in the chance that the Bank of Japan (BoJ) will hike interest rates on Friday. Reuters reported that the Japanese central bank would likely maintain a pledge at the December policy meeting to keep raising interest rates, but noted that the pace of further hikes would depend on how the economy reacts to each increase.
According to a December 2-9 Reuters poll, 90% of economists expected the BoJ to raise short-term interest rates to 0.75% from 0.50% at the December meeting. This is a significant increase over the last Reuters survey conducted last month, which only had 53%.
A catalogue of US data delayed by the government shutdown is set to be released later in the day. The employment reports for October and November will be released on Tuesday, which could provide more clarity on the labor market's health and likely influence expectations for the Federal Reserve’s (Fed) January meeting. The US Consumer Price Index (CPI) inflation data will be published on Thursday. A strong set of employment figures could underpin the Greenback, while signs of a weakening US labor market could weaken it further.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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