Japanese Yen remains fragile ahead of Tokyo CPI, Warsh’s Jackson Hole speech
- USD/JPY remains range-bound below 160 as buyers hesitate near intervention-sensitive levels.
- Japan’s fiscal outlook and low interest rates continue to weigh on the Yen.
- Markets await fresh clues from Jackson Hole and Tokyo inflation figures.
USD/JPY trades in a narrow range below 160 on Thursday, with neither side able to build strong momentum. The US Dollar (USD) is struggling to extend Wednesday’s recovery, while persistent weakness in the Japanese Yen (JPY) continues to keep the pair supported. At the time of writing, USD/JPY trades around 159.30.
The Yen remains one of the weaker major currencies as Japan’s low interest-rate environment and concerns over the country’s fiscal outlook continue to weigh. Expectations that the Bank of Japan (BoJ) could raise rates as soon as September have so far failed to trigger a sustained recovery in the currency.
Strategists at Brown Brothers Harriman note that USD/JPY “remains entrenched between resistance at 160 and support at the 200-day moving average (158.40),” with the pair effectively range-bound as policy signals from Japan evolve. They highlight comments from BoJ Deputy Governor Ryozo Himino, who “stuck to the bank’s hawkish guidance” and stressed that “raising rates in a timely manner will help avoid a spike in inflation and abrupt rate hikes in the future,” adding that “we should pay greater attention to the upside risk to prices than in the past.”
Still, traders appear reluctant to push USD/JPY decisively above 160 amid fears of another intervention after coordinated action by Japan and the United States in late July, when the pair climbed to a 40-year high near 164.
On the US side, the Greenback is holding on to Wednesday’s recovery after the latest Personal Consumption Expenditures (PCE) Price Index showed that inflation remains stubbornly above the Federal Reserve’s (Fed) 2% target. At the same time, elevated Oil prices due to tensions in the Middle East continue to pose upside risks to inflation.
Even so, an immediate Fed rate hike is not the base case. According to the CME FedWatch Tool, markets currently see around a 62% chance that the Fed will leave borrowing costs unchanged at its September meeting.
Kansas City Fed President Jeff Schmid said the energy shock is spilling into the economy and added that he probably would have supported a rate increase at the July meeting. Chicago Fed President Austan Goolsbee also warned that “the biggest short-run fear is that inflation is not under control.”
Attention now shifts to Friday’s events on both sides of the pair, with Fed Chair Kevin Warsh due to speak at the Jackson Hole Symposium and Tokyo Consumer Price Index (CPI) data also on tap.
Bank of Japan FAQs
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.