USD/JPY bounces back above 159.00 but remains within previous ranges

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The US Dollar (USD) posts moderate gains against the Japanese Yen (JPY) on Tuesday, with price action returning above 159.00 after bouncing up from 157.59 lows on Friday. The pair, however, remains bouncing back and forth within a broadly 150-pip range, from 158.50 to the key 160.00 level.

USD/JPY pops up above 159.00 but remains within range, capped below 160.00.
Rumours that the BoJ will leave interest rates on hold next week have hurt the Yen.
Investors bid their time awaiting the outcome of US-Iran peace talks and Fed Warsh's testimony.

A Reuters report released earlier on Tuesday, hinting at steady interest rates at the Bank of Japan’s (BOJ) monetary policy meeting next week, has added pressure on the Yen. Various sources related to the bank indicated to the news agency that policymakers might wait for more data to assess the economic consequences of the war in the Middle East.

Meanwhile, the US Dollar Index, which measures the value of the Greenback against a basket of six majors, posts minor gains on Tuesday, as investors bid their time, awaiting the second round of talks between the US and Iran and the testimony of the recently appointed Federal Reserve (Fed) Chair Kevin Warsh ahead of the US Senate.

On the geopolitical front, the Wall Street Journal confirmed that Tehran will finally send delegates to Pakistan for negotiations after threatening to pull out of the peace process. US sources have been sending mixed messages, though markets remain hopeful that some progress is possible. This is keeping the safe-haven US Dollar at relatively low levels.

Technical analysts at the UOB Bank expect the pair to remain trading sideways in the near-term: “We are not able to derive much from the volatile price action. (...) For the time being, USD could trade between 157.55 and 160.50.”

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.