The Japanese Yen (JPY) adds to its heavy intraday losses after Japan's largest trade union group, Rengo secured an average wage hike of 5.46% for fiscal 2025, compared to the demand for a 6.09% hike. This comes after a source familiar with the Bank of Japan's (BoJ) thinking said that the heightening global uncertainty could affect the rate-hike timing. Moreover, a positive risk tone, bolstered by some positive comments out of the US-Canada trade talks and reports that there will be enough Democratic votes to avoid a US government shutdown, seems to undermine the safe-haven JPY.
Apart from this, a modest US Dollar (USD) strength lifts the USD/JPY pair to the 149.00 mark during the early European session on Friday. Any meaningful JPY depreciation, however, seems elusive amid rising bets that the BoJ will hike interest rates. Moreover, the recent sharp narrowing of the rate differential between Japan and other countries should limit losses for the lower-yielding JPY. This, along with the lack of follow-through USD buying on the back of expectations for more rate cuts by the Federal Reserve (Fed), warrants caution before placing bullish bets around the currency pair.
From a technical perspective, any subsequent move-up is likely to confront some resistance near the 148.60-148.70 support breakpoint ahead of the 149.00 mark and the weekly swing high, around the 149.20 region. A sustained strength beyond the latter could trigger a short-covering rally towards the 150.00 psychological mark, above which the USD/JPY pair could climb to the 150.65-150.70 zone. The momentum could extend further towards the 151.00 mark and the monthly peak, around the 151.30 region.
On the flip side, the 147.75-147.70 horizontal zone now seems to have emerged as an immediate support. A convincing break below could make the USD/JPY pair vulnerable to accelerate the fall towards the 147.00 round figure en route to the 146.55-146.50 region, or the lowest level since October touched earlier this week. Given that oscillators on the daily chart are holding in negative territory and are still away from being in the oversold zone, some follow-through selling will be seen as a fresh trigger for bears and pave the way for further losses.
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.
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