BoJ minutes lift Yen as Ueda and US NFP take focus on Friday

Below 158.00 again, USD/JPY has returned to levels seen before Tuesday's surge towards 159.00.
December rate-hike expectations strengthened after the BoJ minutes, while US technology shares declined.
Friday brings US payrolls data alongside a speech from BoJ Governor Ueda.

USD/JPY has retreated to just above 157.50. Tuesday's peak, just below 159.00, was its highest since mid-October. The Yen is strengthening on Thursday even as the Dollar advances against the Pound, Euro, Kiwi and Aussie. Bank of Japan (BoJ) minutes, interpreted as supporting a December rate rise, drove the Yen's gains, with falling US technology shares providing additional support.

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An eight-to-one vote kept the BoJ's rate at 1.25% on 30 October, while board member Takata favoured 1.5%. Its next meeting is on 17-18 December. Thursday's minutes highlighted that division. The gap between the BoJ rate and the Fed's 3.75%-4.00% stands at two and a half percentage points or more. Provided the Fed holds rates steady, a December BoJ increase would narrow the gap by a quarter-point.

Markets assign a probability of nearly 70% to a Fed rate rise on 9 December. On Thursday, Cleveland Fed President Hammack said policy needs to become restrictive, having voted for an increase on 28 October. If Washington raises rates on 9 December and Tokyo follows on 18 December, the differential would remain unchanged. Thursday's decline in US technology shares is also contributing to the Yen's strength.

December decisions: data and speeches ahead

A 3.8% year-on-year increase is forecast for Japan's September labour cash earnings, matching August's pace. The figures are due at 23:30 GMT on Thursday. BoJ Governor Ueda will speak on Friday at 16:00 GMT. Both will inform the BoJ's 17-18 December decision, its final one this year.

October Nonfarm Payrolls (NFP), due on Friday at 13:30 GMT, are expected to rise by 65K, following September's 29K increase. Earlier that day, New York Fed President Williams is scheduled to speak at 09:30 GMT. The October Consumer Price Index (CPI) follows on Tuesday, 10 November, at 13:30 GMT. A 0.3% reading is forecast, down from 0.6%, with the release informing the Fed's 8-9 December meeting.

156.00-159.00 range back in focus

Since late September, USD/JPY has remained within a 156.00-159.00 trading range, which it has now re-entered. Tuesday's peak marked another reversal from just below 159.00. Both the 50-day Exponential Moving Average (EMA) and the 200-day EMA sit within a quarter-Yen of 158.00. The pair is trading slightly beneath both averages.

USD/JPY: daily price chart

Japanese Yen: frequently asked questions

Which factors matter most for the Japanese Yen?

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

Why do Bank of Japan decisions affect the Japanese Yen?

Currency control is part of the Bank of Japan's mandate, making its actions important for the Yen. Direct intervention in foreign exchange markets has occasionally been used, usually to weaken the currency. Political concerns among Japan's main trading partners, however, discourage frequent intervention. Between 2013 and 2024, the BoJ's ultra-loose monetary stance weakened the Yen against its major peers as policy increasingly diverged from that of other leading central banks. The more recent gradual withdrawal of that ultra-loose policy has provided some support for the currency.

What does the Japan-US bond yield gap mean for the Japanese Yen?

By maintaining ultra-loose monetary policy over the past decade, the BoJ increasingly diverged from other central banks, notably the US Federal Reserve. That divergence helped widen the yield gap between 10-year US and Japanese bonds, supporting the US Dollar against the Japanese Yen. The differential is now narrowing as the BoJ implements its 2024 decision to gradually move away from ultra-loose policy and other major central banks cut interest rates.

Why does market risk sentiment influence the Japanese Yen?

Investors often regard the Japanese Yen as a safe-haven asset. During periods of market stress, its perceived stability and reliability make investors more inclined to move funds into the currency. Such turbulence is therefore likely to lift the Yen against currencies considered riskier investments.