Japanese Yen flatlines near 162.50 ahead of US employment data

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The USD/JPY holds steady around 162.55 during the early Asian trading hours on Thursday. Traders prefer to wait on the sidelines ahead of the key US June employment report later on Thursday. Fears of currency intervention from Japanese authorities also caps the upside for the pair.

USDJPY trades flat near 162.55 in Thursday’s early Asian session.
Fed funds futures have priced in 64% odds of a September rate hike.
Intervention warnings from Japanese officials might cap the upside for the pair.

Strong US labor market data for the past three months has bolstered the outlook for US growth and raised exexpectationsor US rate hikes this year. This, in turn, could underpin the Greenback against the Japanese Yen (JPY).

Economists expect the US Nonfarm Payrolls (NFP) to show 110,000 job additions in June and the Unemployment Rate to hold steady at 4.3% during the same period. Fed funds futures traders are now pricing in nearly a 64% chance of a Federal Reserve (Fed) rate hike by September, according to the CME FedWatch tool.

The ADP National Employment Report on Wednesday revealed that private employment rose by 98,000 jobs in June, compared to 112,000 in May. This figure came in below the market consensus of 113,000.

Traders are on alert for possible intervention from Japanese officials. Japan's top currency diplomat, Atsushi Mimura, said on Wednesday that intervention two months ago to support the yen had been effective and that some US officials had been "supportive" of the move. Finance Minister Satsuki Katayama emphasized on Tuesday that the government was ready to take appropriate action against excessive currency moves.

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.