At a Glance
- Japanese Finance Minister Satsuki Katayama signaled potential intervention against excessive Yen volatility, boosting the currency.
- Sticky core inflation above the Bank of Japan’s target fuels speculation of a near-term rate hike.
- Japan’s cabinet approved a large ¥21.3 trillion economic stimulus package, raising government debt concerns.
- Stronger-than-expected US Nonfarm Payrolls data eased Fed cut expectations, supporting the US Dollar.
- Technical indicators for USD/JPY suggest support emerging at lower levels and resistance around 158.00.
Analysis of Recent Yen Movements and Economic Factors
The Japanese Yen (JPY) has maintained an upward trajectory against the US Dollar (USD) through Friday’s Asian trading session. However, its ascent is tempered by concerns surrounding Japan’s fiscal health. Statements from Japanese Finance Minister Satsuki Katayama have intensified expectations of potential government intervention to curb further Yen depreciation. Additionally, a general decline in equity markets has lent support to the Yen’s safe-haven appeal.
Japan’s cabinet has greenlit an economic stimulus package valued at ¥21.3 trillion, which has amplified worries about an increased supply of government debt. Concurrently, the growing consensus that the Bank of Japan (BoJ) may postpone raising interest rates further is contributing to the Yen’s limited gains. In contrast, the US Dollar is consolidating its recent advances, reaching levels not seen since late May, bolstered by expectations of a less dovish stance from the Federal Reserve.
Yen Resilience Amidst Shifting Economic Outlook
Japan’s Finance Minister Satsuki Katayama issued a strong warning on Friday, stating, We will take appropriate action as needed against excess volatility and disorderly market moves, including those in the long term. This marked the most direct signal to date of potential currency intervention, providing a moderate uplift to the Japanese Yen during the Asian trading session.
📊 Earlier, Japan’s Statistics Bureau reported that the National Consumer Price Index (CPI), along with its core measure (excluding fresh food), increased by 3.0% year-on-year in October. The core CPI (excluding fresh food and energy), a key indicator for the Bank of Japan, stood at 3.1% year-on-year, up from 3.0% in September.
⚡ The inflation data suggests that price pressures in Japan remain consistently above the central bank’s 2% target, keeping alive hopes for an imminent interest rate hike. Bank of Japan Governor Kazuo Ueda acknowledged that the weakening Yen is increasingly impacting import costs and consumer inflation, noting that currency fluctuations are having a more significant effect than in the past.
📈 A Reuters poll released on Thursday indicated that a narrow majority of economists anticipate the BoJ will raise its policy rate to 0.75% in December, with all surveyed forecasting at least that level by the end of Q1 2026. However, uncertainty surrounding the BoJ’s rate hike trajectory persists due to Japan’s Prime Minister Sanae Takaichi’s expansionary fiscal policies and her inclination towards maintaining low interest rates.
📌 In a significant development, Japan’s cabinet approved a ¥21.3 trillion economic stimulus plan, the first major policy initiative under Prime Minister Sanae Takaichi. This package allocates ¥17.7 trillion to general account outlays, surpassing the previous year’s ¥13.9 trillion and representing the largest stimulus since the COVID-19 pandemic. It also includes tax cuts amounting to ¥2.7 trillion.
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Meanwhile, the US Bureau of Labor Statistics released the delayed Nonfarm Payrolls report on Thursday, revealing that the US economy added 119,000 new jobs in September. This figure exceeded market expectations of 50,000 and followed a revised decrease of 4,000 jobs in August. The unemployment rate saw a slight increase to 4.4% from 4.3%.
⚡ This data has eased concerns about a softening US labor market and has further diminished expectations for another interest rate cut by the Federal Reserve in December. The outlook for a less dovish Fed has helped the US Dollar preserve its strong weekly gains, reaching its highest level since late May, which should limit further declines for the USD/JPY pair.
USD/JPY Technical Setup Favors Dip-Buyers
The daily Relative Strength Index (RSI) is indicating slightly overbought conditions, which may deter traders from initiating fresh bullish positions on the USD/JPY pair. Consequently, it might be prudent to await some near-term consolidation or a modest pullback before anticipating any further upward movement.
📍 In the short term, any corrective decline could find initial support just below the 157.00 level, followed by the 156.65-156.60 region. A break below this area could lead the USD/JPY pair towards the 156.00 mark, which is expected to serve as a critical pivot point. A breach of this level could signal potential for deeper losses.
On the upside, the 158.00 mark is likely to act as immediate resistance. Surpassing this level could propel the USD/JPY pair towards the next significant resistance zone in the mid-158.00s. Sustained momentum could potentially drive spot prices to test the January swing high, nearing the 159.00 neighborhood.
Bank of Japan FAQs
What is the Bank of Japan?
The Bank of Japan (BoJ) is the central bank of Japan, responsible for setting monetary policy. Its core mandates include issuing banknotes, managing currency, and conducting monetary control to maintain price stability, with a stated inflation target of around 2%.
What has been the Bank of Japan’s policy?
The Bank of Japan implemented an ultra-loose monetary policy starting in 2013 to stimulate the economy and encourage inflation in an environment of low price growth. This policy involved Quantitative and Qualitative Easing (QQE), which included asset purchases like government and corporate bonds to inject liquidity. In 2016, the BoJ further intensified its strategy by introducing negative interest rates and capping the yield on its 10-year government bonds. In March 2024, the BoJ began to move away from its ultra-loose stance by lifting interest rates.
How do Bank of Japan’s decisions influence the Japanese Yen?
The BoJ’s extensive stimulus measures contributed to the Yen’s depreciation against major currencies. This trend intensified in 2022 and 2023 due to a widening policy divergence between the BoJ and other central banks that raised interest rates aggressively to combat high inflation. The BoJ’s accommodative policy led to a growing interest rate differential with other currencies, consequently weakening the Yen. This pattern began to reverse in 2024 as the BoJ signaled an exit from its ultra-loose monetary policy.
Why did the Bank of Japan decide to start unwinding its ultra-loose policy?
A weaker Yen coupled with rising global energy prices contributed to an increase in Japanese inflation, pushing it above the BoJ’s 2% target. The prospect of rising wages in Japan, considered a key factor for sustained inflation, also played a role in the central bank’s decision to adjust its policy.
Concluding Remarks
The interplay of potential currency intervention fears, persistent inflation, and significant fiscal stimulus continues to shape the Japanese Yen’s trajectory. While domestic factors are providing some support, the broader global economic environment, particularly US monetary policy expectations, remains a key influence on the USD/JPY pair.
