Half its gain erased: Yen retreats ahead of expected BoJ hold on Friday

157.50 reclaimed at the close. USD/JPY recovers roughly half its two-session decline.
An October BoJ rate increase is forecast by none of the economists surveyed by Bloomberg.
Wednesday's Fed statement precedes both Tokyo CPI and the BoJ policy decision.

USD/JPY closed just above 157.50 on Monday. The advance from just above 156.50 reversed roughly half the losses recorded on 22 and 23 October, leaving the pair near its session high two days ahead of the Fed decision. Earlier Yen buying in Tokyo had pushed the pair below 157.00 to its weakest level since 18 September.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

After lifting its rate from 1% to 1.25% in September, the Bank of Japan (BoJ) is not expected to deliver another increase for Yen traders on Friday. BoJ Governor Ueda has said consecutive hikes are unnecessary, and a Friday increase would follow directly after September's move. No economist in Bloomberg's survey forecasts an October hike; most anticipate one in December.

A 7-2 vote approved September's increase, with both dissenters opposing the hike. For Friday, previews identify BoJ board members Takata and Tamura as potential dissenters in favour of raising rates. Such a vote could bring forward the December increase that Yen traders are awaiting.

Key data and policy dates

Thursday at 23:30 GMT brings Tokyo's October Consumer Price Index (CPI) and Japan's September unemployment rate. These are the final data releases ahead of Friday's BoJ decision. At 06:30 GMT on Friday, BoJ Governor Ueda holds his subsequent press conference. His December guidance remains the Tokyo input left for USD/JPY to price in.

A hold at 3.75%-4.00% is expected from the Fed, whose statement is due at 18:00 GMT Wednesday. Attention then turns to third-quarter US growth and September's Personal Consumption Expenditures Price Index (PCE), both scheduled for 12:30 GMT Thursday. Each will help shape the case for a December Fed rate increase.

158.00 moving-average area in focus

Just below 158.00 sit the 200-day Exponential Moving Average (EMA) and the 50-day EMA; Monday's peak failed to reach either. The decline on 22 October produced the first daily close below 157.00 since 18 September. Across the chart's six-month range, the low on 8 September lies just below 153.00, while July's high stands just below 164.00.

USD/JPY daily price chart

Japanese Yen: key questions

Japanese Yen: principal market drivers

Among the world's most actively traded currencies, the Japanese Yen (JPY) draws its broad direction from Japan's economic performance. More specific influences include Bank of Japan policy, the gap between Japanese and US bond yields, and traders' appetite for risk, alongside other factors.

Bank of Japan policy and the Yen

Currency control forms part of the Bank of Japan's mandate, making its actions an important influence on the Yen. Direct intervention in currency markets has occurred on occasion, usually with the aim of weakening the currency. Political concerns among Japan's main trading partners, however, discourage frequent intervention. From 2013 to 2024, the BoJ's ultra-loose monetary stance increasingly diverged from those of other major central banks, driving the Yen lower against its principal currency peers. More recently, a gradual withdrawal of that ultra-loose policy has offered the Yen some support.

US-Japan bond yield gap and the Yen

The BoJ's commitment to ultra-loose monetary settings over the past decade widened its policy divergence with other central banks, notably the US Federal Reserve. As a result, the yield gap between 10-year US and Japanese bonds widened, supporting the US Dollar against the Japanese Yen. That differential is now narrowing as the BoJ's 2024 decision to withdraw gradually from ultra-loose policy combines with interest-rate reductions by other major central banks.

Risk sentiment and demand for the Yen

Often regarded as a safe-haven investment, the Japanese Yen tends to attract capital when markets are under stress. Investors are more inclined to hold the currency because of its perceived reliability and stability. During periods of turbulence, the Yen is therefore likely to appreciate against currencies regarded as riskier investments.

Half its gain erased: Yen retreats ahead of expected BoJ hold on Friday

Key data and policy dates

158.00 moving-average area in focus

USD/JPY daily price chart