Japanese yen boost due to Fears of government intervention.
The Japanese yen (JPY) stays on top against the US dollar heading into Thursday’s European session, with suspicion that Japanese authorities will intervene to support the home currency. This, together with a small US Dollar (USD) decline, proves to be significant factors putting pressure on the japanese yen pair. However, any significant JPY recovery from its lowest level since July 30 reached on Wednesday appears elusive in light of the uncertainties surrounding the Bank of Japan’s (BoJ) rate hike prospects.
The uncertainty around the Bank of Japan’s rate move and the risk-on climate should constrain the safe-haven JPY.
The underlying positive tone in global equities markets should limit the gains for the safe-haven JPY. Meanwhile, expectations of increased GDP and inflation under Trump’s administration back the Federal Reserve’s (Fed) decision to reduce interest rates more gradually. This keeps US Treasury bond yields stable, which should continue to strengthen the USD and help to keep the lower-yielding JPY under control. Traders may also decide to await the outcome of the Federal Open Market Committee (FOMC) meeting later today.
Daily Market Movers: Japanese Yen lacks bullish confidence amid BoJ rate-hike uncertainty and favorable risk tone.
Japan’s Chief Cabinet Secretary Yoshimasa Hayashi reaffirmed on Wednesday that the government intends to closely monitor FX market movements, especially speculative ones, with a greater sense of urgency.
Furthermore, Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, stated on Thursday that the government is prepared to take appropriate action against excessive FX movements if necessary.
Japan’s Finance Minister Katsunobu Kato stated on Thursday that it is critical to achieve fiscal health while focusing on economic recovery.
Japan’s Finance Minister Katsunobu Kato stated on Thursday that it is critical to achieve fiscal health while focusing on economic recovery, and that we must seize this opportunity to avoid deflation.
The minutes of the September Bank of Japan meeting revealed that the central bank plans gradual policy rate rises, yet it remains concerned about international economic risks , notably from the United States.
Investors, on the other hand, appear to believe that political uncertainty in Japan will make it difficult for the BoJ to tighten monetary policy further, undermining the Japanese yen in tandem with the risk-on mentality.
The US dollar posted its largest one-day rise since September 2022, reaching its highest level since July on hopes that Donald Trump’s policies would increase inflation and slow the pace of interest rate decreases.
Furthermore, the resumption of the so-called Trump trade caused a sell-off in the US fixed-income market, raising the yield on the benchmark 10-year US government bond to 4.45%, the highest level since July.
This led in additional widening of the US-Japan rate differential, which may continue to weigh on the lower-yielding JPY and predicts that the Japanese yen pair will see the least opposition on the upswing.
