USD/JPY extends losses to fresh two-week lows near 154.50

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The US Dollar-Yen recovery attempt seen during Thursday’s early Asian session was capped at 155.50, and the pair resumed its broader bearish trend during the European trading session, breaching Monday’s low of 154.65 to hit fresh two-week lows near 154.50 at the time of writing.

The US Dollar extends losses against the Yen and hits fresh two-week lows near 154.50.
BoJ's Ueda keeps hopes of a rate hike alive but casts doubts on what will come afterwards.
The US Dollar remains vulnerable as the market braces for a series of Fed rate cuts in the next 12 months.

The Bank of Japan Governor, Kazuo Ueda, provided some support to the US Dollar earlier on Thursday, suggesting that the bank is committed to tightening its monetary policy in the coming months, but showing uncertainty about how high rates might go after that.

The US Dollar, however, remains on the defensive with investors bracing for a Federal Reserve rate cut next week. ADP employment data released on Wednesday showed an unexpected decline in net employment in November, which adds pressure on the Fed to adopt a more supportive monetary policy.

Later today, the US Jobless claims are expected to strengthen the case for an easier monetary policy, although investors might stand pat, awaiting the release of the delayed US Personal Consumption Expenditures (PCE) prices index for September, due on Friday.

Beyond that, rumours that White House Economic adviser, Kevin Hassett, will replace Jerome Powell as the next Fed Chairman when his term ends in May, have added bearish pressure on the US Dollar. Hassett is considered a Trump loyalist who will pursue the president's agenda for a much easier monetary policy, which, according to a report by the Financial Times, has raised strong concerns among bond investors.

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

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.

How do Bank of Japan’s decisions influence the Japanese Yen?

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.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

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.