USD/JPY gathers strength above 155.00 as traders brace for return of US data

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The USD/JPY pair trades in positive territory near 155.20 during the early Asian session on Tuesday.

USD/JPY strengthens around 155.20 in Tuesday’s early Asian session.
Traders brace for the US September NFP data, which is due Thursday.
The Japanese Yen hovers around a nine-month low amid diminishing odds for a December BoJ rate hike.

The USD/JPY pair trades in positive territory near 155.20 during the early Asian session on Tuesday. The US Dollar (USD) strengthens against the Japanese Yen (JPY) as traders continue to gauge the long-awaited return of US economic data and the likelihood of further rate cuts by the Federal Reserve (Fed). The US September Nonfarm Payrolls (NFP) report will take center stage later on Thursday.

A flood of data that was delayed during the US government shutdown is due to be published starting this week, and it is expected to offer some hints on the health of the world's largest economy. Analysts believe that the resumption of US economic data will show job market weakness and a potential slowdown. Any signs of weakness in the US labor market could exert some selling pressure on the Greenback in the near term.

Meanwhile, investors have trimmed expectations of a Fed cut in the December meeting due to the uncertainty. Markets are now pricing in less than a 40% probability of a 25 basis points (bps) rate cut next month, down from more than 60% earlier this month, according to the CME FedWatch tool.

The Japanese Yen remains weak near its lowest level since February despite stronger-than-expected growth data. Japanese Prime Minister Sanae Takaichi urged the Bank of Japan (BoJ) to maintain low interest rates, emphasizing that monetary policy should support both robust economic growth and stable price increases.

Nonetheless, traders are alert to the threat of intervention from Japanese authorities to stem the JPY's weakness. Japan's Finance Minister Satsuki Katayama said last week that she will be watching FX moves with a sense of urgency. Additionally, Japan's Economy Minister Minoru Kiuchi said on Friday that a weak JPY can push up CPI through import costs, warranting caution for the JPY bears.

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.