USD/JPY softens to near 156.00 ahead of BoJ's Ueda speech

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USD/JPY trades with mild losses around 156.10 in Monday’s early Asian session.
Growing speculation that the Fed may cut interest rates in December drags the US Dollar lower.
Traders brace for the BoJ’s Ueda speech and US ISM Manufacturing PMI data on Monday.

The USD/JPY pair posts modest losses near 156.10 during the early Asian session on Monday. Traders raise bets that the US Federal Reserve (Fed) will cut interest rates again at the December policy meeting, which weighs on the US Dollar (USD) against the Japanese Yen (JPY). Later on Monday, the Bank of Japan’s (BoJ) Governor Kazuo Ueda is set to speak. Also, the US ISM Manufacturing Purchasing Managers Index (PMI) report for November will be published.

US softer labor market data and dovish remarks from the Fed officials fueled expectations of a December rate cut. Fed funds futures traders are now pricing in nearly an 87% chance of a reduction at the conclusion of the Fed's December 9-10 meeting, up from 71% odds a week ago, according to the CME FedWatch Tool. Fed officials will enter a quiet period ahead of the Fed meeting. Traders await the upcoming US economic data for fresh impetus.

Reuters reported on Thursday that the Japanese government plans to issue more new bonds to fund Prime Minister Sanae Takaichi’s economic package. Concerns over the supply of new government debt had pushed longer-dated government bond yields to their highest in more than two decades earlier this month. This, in turn, could undermine the Japanese Yen and create a tailwind for the pair.

Hawkish comments from some BoJ policymakers, including Junko Koeda and Kazuyuki Masu, increase expectations of a BoJ rate hike in December, which might help limit the JPY’s losses. However, BoJ’s Ueda speech will be closely monitored on Monday, as it might offer some hints about a rate hike at the BoJ's December meeting.

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.