Japanese Yen sinks to fresh low since 1986 vs USD amid persistently wide US-Japan rate gap

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The USD/JPY pair builds on the previous day's breakout momentum and continues to scale new multi-decade highs through the Asian session on Wednesday.

USD/JPY attracts buyers for the third straight day and continues to scale new multi-decade highs.
The wide US-Japan rate differential keeps the JPY carry trade in play and lends support to the pair.
The Iran uncertainty and Fed hike bets underpin the USD, providing an additional lift to spot prices.

The USD/JPY pair builds on the previous day's breakout momentum and continues to scale new multi-decade highs through the Asian session on Wednesday. Spot prices currently trade around the 162.70 region, up for the third straight day, keeping traders on high alert amid expectations of a possible intervention by Japanese authorities.

In fact, Japan's Chief Cabinet Secretary Minoru Kihara reiterated on Tuesday that he stands ready to take the necessary action in the foreign exchange market. Japan's Finance Minister Satsuki Katayama also said the government would respond appropriately to excessive currency moves at any time as needed. Repeated warnings/verbal interventions, however, do little to provide any respite to the Japanese Yen (JPY) amid the wide rate differential between Japan and other major economies, including the US.

The Bank of Japan (BoJ) raised its benchmark policy rates to 1% – the highest since 1995 – in June, while the US Federal Reserve (Fed) maintained the interest rate target range of 3.5% to 3.75%. Meanwhile, the BoJ is expected to continue with its gradual policy normalization path. However, elevated Federal Reserve (Fed) rate increase expectations keep the so-called JPY carry trade in play. This, along with a modest US Dollar (USD) uptick, continues to act as a tailwind for the USD/JPY pair and favors bullish traders.

Both the US and Iran recently accused each other of violating the interim June accord, leaving the peace process fragile. Adding to this, the US Job Openings and Labor Turnover Survey (JOLTS) pointed to a resilient labor market and reaffirmed bets that the US central bank will raise borrowing costs. According to the CME Group's FedWatch Tool, traders are assigning around a 83% probability of a move this year. This backs the case for a further near-term appreciating move for the USD and the USD/JPY pair.

Moving ahead, traders now look forward to Fed Chairman Kevin Warsh's appearance at the European Central Bank (ECB) Forum in Sintra. Furthermore, Wednesday's US economic docket, featuring the release of the ADP report on private-sector employment and the ISM Manufacturing PMI, should provide some impetus to the USD later during the North American session. The market focus will then shift to the release of the US monthly jobs data – popularly known as the Nonfarm Payrolls (NFP) report on Thursday.

Japanese Yen Price This week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Canadian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.14%	-0.25%	0.59%	0.20%	-0.08%	-0.30%	-0.10%
EUR	0.14%		-0.15%	0.74%	0.30%	0.04%	-0.22%	-0.01%
GBP	0.25%	0.15%		0.93%	0.46%	0.18%	-0.05%	0.15%
JPY	-0.59%	-0.74%	-0.93%		-0.42%	-0.69%	-0.80%	-0.72%
CAD	-0.20%	-0.30%	-0.46%	0.42%		-0.28%	-0.39%	-0.22%
AUD	0.08%	-0.04%	-0.18%	0.69%	0.28%		-0.24%	-0.03%
NZD	0.30%	0.22%	0.05%	0.80%	0.39%	0.24%		0.18%
CHF	0.10%	0.00%	-0.15%	0.72%	0.22%	0.03%	-0.18%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).