USD/JPY hangs near one-week low; bears await break below 154.00 ahead of US NFP

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The USD/JPY pair remains on the back foot below mid-154.00s through the Asian session on Wednesday and looks to build on its heavy losses registered over the past two days. Traders, however, seem reluctant and might opt to wait for the delayed release of the US monthly employment details.

USD/JPY struggles to attract any meaningful buyers and seems vulnerable to slide further.
The divergent BoJ-Fed policy expectations validate the negative outlook for spot prices.
Bears, however, seem reluctant to place aggressive bets ahead of the key US NFP report.

The popularly known US Nonfarm Payrolls (NFP) report, originally scheduled for early February, was delayed due to a partial federal government shutdown and is expected to show that the economy added 70K new jobs in January. Meanwhile, the unemployment rate is seen holding steady at 4.4%. This, along with Average Weekly Earnings, will play a key role in influencing the US Federal Reserve's (Fed) policy outlook, which, in turn, will drive the US Dollar (USD) and provide some meaningful impetus to the USD/JPY pair.

In the meantime, bets that the US central bank will lower borrowing costs two more times this year and concerns about the Fed's independence keep the USD close to an over one-week low, touched on Tuesday. In contrast, expectations that Prime Minister Sanae Takaichi’s expansionary policies will boost the economy and prompt the Bank of Japan (BoJ) to stick to its hawkish stance continue to underpin the Japanese Yen (JPY). This, in turn, favors the USD/JPY bears and backs the case for a further near-term depreciating move.

That said, traders might opt to wait for a sustained break and acceptance below the 154.00 mark before positioning for deeper losses. Nevertheless, the broader fundamental backdrop suggests that the path of least resistance for the currency pair remains to the downside. Moreover, fears that Japanese authorities will intervene to support the JPY should keep the USD/JPY bulls on the sidelines and cap any meaningful recovery attempt from a one-and-a-half-week low, around the 154.00 neighborhood, touched on Tuesday.

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.