Yen Weakens as Policymakers Delay Rate Hikes

October 4, 2024

Key Points:

• Yen stabilises at 146.48 per dollar, losing over 3% of its value against the U.S. dollar this week.
• New Japanese government officials suggest further rate hikes may be premature, while strong U.S. data supports a robust dollar.

The Japanese yen (Symbol: USDJPY) trades around 146.48 against the U.S. dollar on Friday, following a sharp decline earlier in the week.

The loss of strength comes as top Japanese officials, including newly appointed Prime Minister Shigeru Ishiba, signalled that the country is not ready for further interest rate hikes.

Ishiba’s comments, alongside remarks from his economy minister, Ryosei Akazawa, urging the central bank to remain cautious, have tempered expectations of imminent policy tightening.

Kato to Focus on Relief

Finance minister Katsunobu Kato has been tasked with implementing measures aimed at price relief, economic growth, and support for low-income households, all of which point to a focus on economic stability rather than rate hikes.

Externally, the Japanese yen faces continuous pressure from a strengthening U.S. dollar.

Picture: USD/JPY consolidates near 146.48, with resistance at 147.24, as observed on the VT Markets app.

From the chart above, we can see that the USDJPY is consolidating around 146.481, recovering from a low of 145.916, with resistance at 147.241. The MACD is neutral, showing no strong trend at the moment. Key events to watch include the upcoming U.S. Non-Farm Payrolls report and the Bank of Japan’s dovish stance, both of which will influence USDJPY’s next move.

Related content: Interest Rate Tug of War for Central Banks

Strong U.S. economic data this week has reinforced the view that the Federal Reserve may not need to cut rates aggressively, fueling the upwards momentum for the U.S. dollar index (Symbol: USDX).

The combination of domestic caution and external dollar strength has driven the USDJPY currency pair to its current position, with little expectation of a rapid recovery unless there is a shift in the monetary stance of either country.

What is Next for the Japanese Yen

Looking ahead, markets are likely to stay cautious on the yen, with its trajectory depending on the Japanese internal economic conditions and any shifts in the U.S. monetary policy.

While short-term declines may continue, major support could emerge if policymakers of Japan show signs of a pivot, or if the Federal Reserve unexpectedly changes its stance.

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