Japanese Yen gives back most of its rally as Fed hike talk grows
Holding up the Yen is costing Japan more each time and working for less time. USD/JPY is trading above 158.00, on track for its first daily close above its 200-day average since September 2.
The Japanese Yen regained some of its strength after a rally, as speculation around Federal Reserve hikes grew. The USD/JPY exchange rate traded above 158.00, marking its first daily close above the currency's 200-day average since September 2. Japan's Finance Ministry purchased ¥15.4 trillion of Yen between July 30 and August 26, more than the previous month's spending, while the US Treasury intervened on July 31.
The Bank of Japan (BoJ) increased its rate to 1.25% on September 18 in a 7-2 vote, the highest since 1995. Meanwhile, the Federal Reserve sits at 3.75-4.00%. Despite borrowing Yen at 1.25% to hold Dollars offering nearly 4%, the move still proved profitable. On September 8, US Treasury Secretary stated he possessed more insight into the BoJ's next move than market participants.
The Japanese market was closed for holidays, reopening on Thursday - the day the new BoJ rate would take effect. Japanese officials confirmed exchange rates with traders on September 18, a step typically preceding Japanese Yen purchases. Following the check, USD/JPY began trading above its levels seen on the day of that assessment.
Resistance: Wednesday's high, just below 158.50, acted as the first barrier. Above that, 159.00, a level previously observed in late August, and 160.00, the starting point of last week's decline, await USD/JPY. Support: The 158.00 level transformed from a ceiling to a support on Wednesday. Below, the 200-day Exponential Moving Average (EMA) near 157.50 had capped all daily closes since September 2, and 157.00 stands as the next downward target.
Bias: Long above 157.50, targeting 159.00 and then 160.00. The daily Stochastic Relative Strength Index (Stoch RSI) rose to a near 40 level and remains rising, still far from overbought territory. A daily close back under 157.00 would end the long. The Japanese Yen, one of the world's most traded currencies, is primarily influenced by the performance of the Japanese economy and the Bank of Japan's policy.
The Bank of Japan's moves, aimed at lowering the Yen's value, are crucial for the Yen's value. The Bank of Japan's ultra-loose monetary policy from 2013 to 2024 caused the Yen to depreciate against its peers due to policy divergence between the Bank of Japan and other major central banks. Recently, the gradual unwinding of this ultra-loose policy has given the Yen some support.
Over the past decade, the BoJ's adherence to loose monetary policy has contributed to a widening policy divergence with other central banks, particularly the US Federal Reserve. This divergence has supported the widening gap between the 10-year US and Japanese bonds, favoring the US Dollar against the Japanese Yen. The BoJ's decision in 2024 to gradually abandon the ultra-loose policy, combined with cuts in interest rates by other major central banks, is narrowing this gap.
The Japanese Yen is often viewed as a safe-haven investment, gaining value during market stress due to its perceived reliability and stability. During turbulent times, the Yen's value against riskier currencies is likely to strengthen.
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