The Japanese Yen (JPY) surrenders a major part of intraday gains against its American counterpart, pushing the USD/JPY pair back closer to mid-149.00s heading into the European session on Tuesday. Data released from Japan earlier today showed an unexpected uptick in the Unemployment Rate and a fall in corporate capital expenditure for the first time in three years, which, in turn, prompts some selling around the JPY.
Any meaningful JPY depreciation, however, still seems elusive in the wake of the hawkish sentiment surrounding the Bank of Japan’s (BoJ) policy outlook. Apart from this, the risk-off mood and US President Donald Trump’s threat to Japan over currency devaluation should act as a tailwind for JPY. This makes it prudent to wait for some follow-through buying before confirming that the USD/JPY pair has formed a near-term bottom.
Japanese Yen bulls turn cautious amid a modest USD uptick; downside seems cushioned
Growing speculation that the Bank of Japan will hike interest rates sooner rather than later keeps the yield on the benchmark 10-year Japanese government bond close to its highest level since 2009 and continues to underpin the Japanese Yen.
Ukrainian President Volodymyr Zelenskiy’s meeting with US President Donald Trump ended in disaster on Friday. A White House official confirmed that the US has paused military aid to Ukraine, which adds to the uncertainty in markets.
Trump’s tariffs on Mexican and Canadian goods will take effect this Tuesday, along with a new 10% levy on Chinese goods. China’s Commerce Ministry vowed to take necessary countermeasures to safeguard legitimate rights and interests.
Trump said on Monday that he has warned the leaders of China and Japan against devaluing their currencies against the US Dollar, arguing that such actions put American industries at a disadvantage.
Japan’s Finance Minister, Katsunobu Kato, said on Tuesday that the country is not pursuing a policy of devaluing the domestic currency and Japan has confirmed its “basic stance on currency policy” with US Treasury Secretary Scott Bessent.
Speaking at a separate news conference, Japan’s Economy Minister Ryosei Akazawa said that the government intervenes in the currency market only when the movement is “speculative”.
Japan’s Prime Minister Shigeru Ishiba adds that the government is not pursuing so-called currency devaluation policy.
Data released earlier this Tuesday showed that the Unemployment Rate in Japan unexpectedly edged up from 2.4% to 2.5% in January and Japanese companies reduced spending on plants and equipment in October-December by 0.2%.
The Institute for Supply Management’s (ISM) Manufacturing PMI slipped to 50.3 in February from 50.9 in the previous month, while the Prices Paid Index jumped to 62.4, or nearly a three-year high amid worries about duties on imports.
Moreover, investors remain concerned that Trump’s policies would increase price pressures and slow down activity in vital industrial sectors. This might force the Federal Reserve to cut rates further and weigh on the US Dollar.
