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- The USD/JPY pair continued to trade near its recent highs at 161.45 in early Asian Tuesday session.
- The US ISM manufacturing PMI came in weaker than expected, falling to 48.5 in June from 48.7 in May.
- Possible intervention in the foreign exchange market by the Japanese authorities may limit the pair’s rise.
the USD/JPY The USD/JPY pair continues to climb near the $161.45 level on Tuesday during early Asian trading hours. The modest recovery in the US dollar is providing some support to the pair. However, there are expectations that Japanese authorities will soon intervene in the foreign exchange market to prevent the Japanese yen from declining.
U.S. manufacturing sector shrank for third straight month in June amid weak demand and higher interest rates RatesThe US ISM manufacturing PMI fell to 48.5 in June from 48.7 in May. The figure was below the market consensus of 49.1. However, hawkish comments from Fed officials are still supporting the dollar despite the weaker-than-expected data. US economic data.
San Francisco Federal Reserve President Mary Daly said Friday that monetary policy is working well, but it is too early to say when it is appropriate to cut interest rates. If inflation remains flat or falls slowly, interest rate hikes will be needed for a longer period, Daly added.
Meanwhile, Japanese Finance Minister Shunichi Suzuki said authorities are concerned about the impact of “rapid and biased” moves in the foreign exchange market on the economy, adding that excessive volatility in the currency market is undesirable and that authorities will respond appropriately to such moves. This in turn could support the yen in the near term and limit the pair’s advance. “USD/JPY continues to trade near its recent highs. This is also near its highest level since 1986. There is speculation that Japanese authorities may intervene soon. While the level of the yen is one factor to consider, officials are also focusing on the pace of decline as the intention of the intervention is to limit excessive volatility,” OCBC analysts said.
Frequently Asked Questions About 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, but more specifically by the policy of the Bank of Japan, the spread between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is to control the currency, so its moves are of great importance to the yen. The BOJ has intervened directly in currency markets at times, generally to depress the yen, though it has often refrained from doing so due to political concerns in its major trading partners. The BOJ’s current ultra-easy monetary policy, underpinned by massive stimulus to the economy, has caused the yen to weaken against its major peers. This process has been exacerbated recently by the growing political divergence between the BOJ and other major central banks, which have opted to raise interest rates sharply to combat decades-high inflation.
The Bank of Japan’s ultra-easy monetary policy stance has widened the gap between the policies of other central banks, especially the US Federal Reserve. This supports a widening gap between the US and Japanese 10-year bonds, which is in favour of the US dollar versus the Japanese yen.
The Japanese yen is often viewed as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency due to its perceived reliability and stability. Turbulent times are likely to boost the value of the yen against other currencies that are perceived as riskier to invest in.
