The USD/JPY pair continues its upward trend, reaching around 156.60 in Friday’s early Asian session. This marks the fifth consecutive day of gains for the pair, with the US Dollar strengthening against the Japanese Yen. The boost in the pair’s movement is attributed to the overall firmness of the USD in the market. Traders are closely watching the upcoming US October Retail Sales data scheduled to release later in the day.
Japan’s Gross Domestic Product (GDP) for the third quarter (Q3) expanded by 0.2% QoQ, meeting market expectations. The GDP Annualized growth rate for the same period stood at 0.9%, surpassing market consensus but showing a significant slowdown from the previous quarter. The Japanese Yen reacted weakly to the GDP report. Bank of Japan (BoJ) Governor Kazuo Ueda’s cautionary statements regarding future policy decisions based on income data could impact the JPY’s performance against the USD in the near term, although verbal interventions from Japanese authorities may help stem losses for the JPY.
Federal Reserve (Fed) Chair Jerome Powell’s remarks on the strong US economic growth influencing the Fed’s decision-making on interest rates has led traders to revise their expectations for a December rate cut. The cautious approach of Powell has lifted the Greenback, reducing the likelihood of a rate cut at the upcoming Fed meeting. Richmond Fed President Thomas Barkin also emphasized the need for more progress to maintain positive momentum. Market expectations for a 25 basis points rate cut at the December meeting have decreased to 59.1%, down from 75% the previous week.
The Japanese Yen, as one of the world’s most traded currencies, is influenced by various factors such as the performance of the Japanese economy, Bank of Japan’s policy decisions, the yield differentials between Japanese and US bonds, and market sentiment among traders. The BoJ’s interventions in currency markets, mainly aimed at controlling the Yen’s value, impact the currency’s movements. The policy divergence caused by the BoJ’s ultra-loose monetary policy from 2013 to 2024 led to the Yen depreciating against other major currencies. The gradual unwinding of this policy has provided some support to the Yen in recent times.
In the past decade, the policy stance of the BoJ and the widening differential between US and Japanese bond yields have favored the US Dollar over the Japanese Yen. However, the BoJ’s decision to move away from ultra-loose policy, combined with rate cuts by other central banks, is narrowing this differential. The Japanese Yen is often considered a safe-haven asset, sought after by investors during market uncertainties due to its perceived reliability and stability. During times of market stress, the Yen typically strengthens against riskier currencies.
Overall, the USD/JPY pair’s performance is influenced by a combination of economic data releases, central bank policies, market sentiments, and global economic conditions. Traders closely monitor key indicators like GDP reports, interest rate decisions, and retail sales data to gauge the strength of the US Dollar and the Japanese Yen. The ongoing developments in the US economy, Federal Reserve’s policy outlook, and Japan’s economic recovery efforts play a crucial role in shaping the trajectory of the USD/JPY pair in the coming days.
