- USD/JPY softens to near 143.85 in Monday’s Asian session, down 0.53% on the day.
- Expectations for earlier Fed interest rate cuts undermine the US Dollar.
- Traders brace for the Fedspeak later on Monday ahead of the BoJ’s Q2 Tankan survey.
The USD/JPY pair attracts some sellers to around 143.85 during the Asian session on Monday. The US Dollar (USD) weakens against the Japanese Yen (JPY) amid rising bets of Federal Reserve (Fed) interest rate cuts. Later on Monday, the Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee are set to speak.
The United States (US) and China are close to a tariff deal. However, US President Donald Trump unexpectedly ended trade discussions with Canada, adding uncertainty to the market’s positive outlook.
Additionally, traders bet that the US central bank will cut rates more times and possibly sooner than previously expected. The markets are pricing in nearly 92.4% odds of one quarter-point Fed rate reduction in the September meeting, up from 70% a week earlier, according to the CME FedWatch tool.
About the data, the Personal Consumption Expenditures (PCE) Price Index rose by 2.3% YoY in May, compared to 2.2% in April (revised from 2.1%), according to the US Bureau of Economic Analysis on Friday. This reading came in line with market expectations. Meanwhile, the core PCE Price Index, which excludes volatile food and energy prices, climbed 2.7% in May, following the 2.6% increase (revised from 2.5%) seen in April.
On the other hand, the cautious stance from the Bank of Japan (BoJ) around raising interest rates could weigh on the JPY and create a tailwind for the pair. Looking ahead, traders will keep an eye on the BoJ’s upcoming quarterly Tankan survey for the second quarter (Q2), due later on Tuesday, for fresh impetus.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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