USD/JPY rises to nearly 148.00 as calm market sentiment hurts yen’s appeal
- USD/JPY rises to nearly 148.00 as the Japanese yen’s safe-haven appeal has diminished.
- US inflation data will influence market speculation about the size of a Fed interest rate cut in September.
- Investors expect the US Producer Price Index (PPI) and Core Earnings Index (PPI) to grow more slowly on both a monthly and annual basis.
The USD/JPY pair jumps to nearly 148.00 in the European session on Tuesday. The asset is gaining as the Japanese yen (JPY) weakens on the back of a sharp decline in inflows into safe-haven assets. Investor demand for risky assets has increased as fears of a possible recession in the United States (US) have eased significantly.
Concerns about an economic slowdown in the US were sparked by the weak Nonfarm Payrolls (NFP) report for July. However, a decline in initial jobless claims in the week ending August 2 suggested that labor market conditions are not as bad as expected.
Meanwhile, market sentiment is optimistic as the US consumer price index (CPI) for July is in sight. S&P 500 futures posted decent gains in the European session. The US dollar index (DXY), which tracks the greenback’s value against six major currencies, is holding the key support level of 103.00. US 10-year Treasury yields are rising slightly to nearly 3.91%.
The US consumer price index is highly expected to influence market speculation about Federal Reserve (Fed) rate cuts this year. Currently, financial markets expect the Fed to start cutting rates from the September meeting. However, traders are divided on the extent of the rate cut. The CME FedWatch tool shows that the probability of a 50 basis point (bp) rate cut is 49.5%.
In today’s session, investors will focus on US producer price index (PPI) data for July, due at 12:30 GMT. Economists expect the monthly headline PPI to have barely increased last month. Core PPI, which excludes volatile food and energy prices, grew more slowly (0.2%) compared to the previous release of 0.4%. Annual headline and core PPI are expected to have slowed by three-tenths to 2.3% and 2.7% respectively.
Frequently asked questions about the Japanese yen
The Japanese yen (JPY) is one of the most traded currencies in the world. Its value is largely determined by the performance of the Japanese economy, more specifically by the policies of the Bank of Japan, the difference between Japanese and US bond yields or the risk appetite of traders, among other factors.
One of the Bank of Japan’s responsibilities is currency control, so its actions are crucial for the yen. The BoJ has sometimes intervened directly in foreign exchange markets, generally to lower the value of the yen, although it often refrains from doing so due to political concerns among its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive economic stimulus, has led to a depreciation of the yen against its major counterpart currencies. This process has recently worsened due to a growing policy divergence between the Bank of Japan and other major central banks, which have opted to raise interest rates sharply to combat decades of high inflation.
The BoJ’s stance of maintaining its ultra-loose monetary policy has led to a growing divergence in its policies with other central banks, particularly the US Federal Reserve. This is leading to a widening of the spread between the US and Japanese 10-year bonds, favoring the US dollar against the Japanese yen.
The Japanese yen is often viewed as a safe haven asset. This means that during times of market stress, investors are more likely to put their money into the Japanese currency because it is seen as reliable and stable. Turbulent times are likely to strengthen the yen’s value against other currencies that are considered riskier.
