USD/JPY declines below 155.50 on weaker US jobs data, rising BoJ rate hike expectations

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The USD/JPY pair attracts some sellers to around 155.25 during the early Asian session on Thursday. The US Dollar (USD) softens against the Japanese Yen (JPY) on weaker-than-expected US jobs data and expectations of further US rate cuts.

USD/JPY edges lower to near 155.25 in Thursday’s early Asian session.
US ADP private payrolls unexpectedly declined in November.
BoJ’s Ueda comments support the Japanese Yen.

Data released by the Automatic Data Processing (ADP) on Wednesday showed that private employers shed 32,000 jobs in November, compared to the 47,000 increase (revised from 42,000) seen in October. This figure came in below the market expectation of 5,000 growth and marked the largest monthly decline since early 2023. This report pointed to a weakening US labor market, which exerted some selling pressure on the Greenback against the JPY.

According to the CME FedWatch Tool, interest rate futures traders are pricing in a nearly 89% chance of a quarter percentage point cut in the fed funds rate by the Fed next week, to 3.50%-3.75%, up from just 63% a month ago.

Rising Bank of Japan (BoJ) rate hike bets could also underpin the JPY and create a headwind for the pair. BoJ Governor Kazuo Ueda said on Monday that the Japanese central bank will consider the "pros and cons" of raising interest rates at its next policy meeting. Ueda further stated that the likelihood of the BoJ’s baseline scenario for growth and inflation being realized is gradually increasing. These remarks reaffirm market bets for a BoJ rate hike move, either in December or January.

The US weekly Initial Jobless Claims data will be published later on Thursday. If the report shows a stronger-than-expected outcome, this could help limit the USD’s losses in the near term. On the other hand, any signs of a further weakening US labor market could drag the Greenback lower.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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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