Japanese Yen continues to increase strongly against USD, buyers take control
In the trading session on February 6, the Japanese Yen (JPY) increased to its highest level since December 12 against the USD. The reason is due to growing expectations that the Bank of Japan (BoJ) will continue to raise interest rates. These predictions were further reinforced after Japan's wage data released on Wednesday showed better-than-expected gains.
Meanwhile, the US Federal Reserve (Fed) is likely to cut interest rates later this year. This narrows the interest rate gap between the US and Japan, making the Yen more attractive to investors.
In addition, falling US government bond yields put pressure on the USD, causing the USD/JPY exchange rate to fall for the third consecutive day. However, there are still some factors that hold back the Yen's gains, such as concerns that Japan could be a tariff target for US President Donald Trump in the future. In addition, optimism in the market also limits demand for the Yen - which is considered a safe-haven asset. As a result, the USD/JPY exchange rate has recovered slightly by about 40 pip from its lowest level of the day, around 151.80.
Yen is supported, may continue to increase in price
Data released on Wednesday showed that real wages in Japan increased, further reinforcing expectations that the BoJ will continue to raise interest rates.
Japanese Finance Minister Katsunobu Kato also said prices will continue to rise, although Japan has not yet officially escaped deflation.
A member of the BoJ Council, Tamura Naoki, also said that the central bank needs to increase interest rates to at least 1% in the second half of fiscal 2025.
Currently, the market is assessing a 94.8% chance that the BoJ will raise interest rates by 0.25% at its September meeting.
Meanwhile, in the US, the market is predicting that the Fed could cut interest rates twice by the end of this year, as the US economy is showing signs of slowing down.
Tuesday's JOLTS employment report showed that the number of unemployed jobs in the US fell from 8.09 million to 7.6 million in December. In addition, data from the Institute for Supply Management (ISM) shows that the service sector is still expanding but at a slower pace than last month.
The ISM Services PMI fell from 54.0 to 52.8 in January, the Payment Price Index fell from 64.4 to 60.4, while the Employment Index increased slightly from 51.3 to 52.3.
These data have caused US government bond yields to fall, leading to a weakening of the USD and continuing to put pressure on the USD/JPY exchange rate.
Even as the ADP jobs report showed the private sector added 183,000 jobs in January (higher than last month), the US dollar still failed to recover significantly.
Vice President of the Fed, Philip Jefferson, said he wants to keep current interest rates unchanged and look ahead to the Trump administration's policies.
Today, the market will monitor Challenger's job cuts and weekly jobless claims data to assess further the US economic situation. However, the main focus is still the important employment report - Non-farm Payrolls (NFP) scheduled to be released on Friday.
According to Lao Dong at 12:00 on February 6, 2025, the Yen decreased to 152.296 USD/JPY, meaning 1 USD was exchanged for about 152 JPY.
