Tokyo inflation and a BoJ rate decision come next for a flat Yen

USD/JPY eases to just above 157.50 after Amazon and Intel results disappoint.
US growth beats its forecast, but futures already price a December Fed hike.
The BoJ's decision is due Friday, and most analysts expect a hike in December.

US growth beat its forecast, and the Dollar is still lower against the Yen after results from Amazon (AMZN) and Intel (INTC) disappointed. USD/JPY reached its session high just above 158.00 around the European Central Bank's (ECB) decision. It has fallen twice from there and is trading just above 157.50, near the bottom of its session range.

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US growth ran at a 3.4% annual rate in the third quarter against a 3.2% forecast, and core Personal Consumption Expenditures Price Index (PCE) inflation matched its 3.1% forecast. USD/JPY barely moved on either. Futures priced a December Fed hike near 85% after Wednesday's 10-2 hold, a move that would lift the US side of USD/JPY's rate gap to 4.00%-4.25%.

The Bank of Japan (BoJ) began a two-day meeting on Thursday with its rate at 1.25%, and most analysts in a Reuters poll expect 1.5% in December. The Fed and the BoJ each raised rates by a quarter-point in September, which left USD/JPY's rate gap exactly where it was, at 2.50-2.75 points.

On the calendar

October's Consumer Price Index (CPI) for Tokyo is out on Thursday at 23:30 GMT, with prices outside fresh food forecast up 2.6% after 2.7%. The BoJ's decision follows on Friday at no fixed hour, and BoJ Governor Ueda holds a news conference at 06:30 GMT and speaks again at 16:00 GMT on November 6. All of it bears on the timing of the BoJ's next hike.

San Francisco Fed President Daly and St. Louis Fed President Musalem speak at 16:00 GMT and 16:30 GMT on Friday. October's Nonfarm Payrolls (NFP) report is due at 13:30 GMT on November 6, after a 29K gain in September, and feeds the Fed's December decision.

On the charts

USD/JPY is trading on its 200-day Exponential Moving Average (EMA), with the 50-day slightly higher. The climb off the early-September low just under 153.00 stopped just above 159.00 on September 24, and the pair hasn't been back above that high since. It has recovered a little over two-fifths of its drop from the late-July high just under 164.00.

USD/JPY daily chart

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.

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