Japanese Yen suddenly depreciates
In the trading session on February 1, the Japanese Yen (JPY) continued to be under downward pressure, while the US Dollar (USD) was strongly bought, pushing the USD/JPY pair above 152.00.
The main reason for the JPY's weakening is the optimistic sentiment in the market. Investors believe the US could delay the imposition of countervailing tariffs, while negotiations to end the war between Russia and Ukraine are progressing.
This reduces demand for the yen, which is considered a safe-haven asset. In addition, rising US Treasury yields also attract cash flow into assets with higher yields, making the JPY less attractive.
However, the JPY's decline may not last long. Positive Q4 GDP figures show that the Japanese economy is recovering, reinforcing expectations that the Bank of Japan (BoJ) will continue to raise interest rates this year.
Meanwhile, the US Federal Reserve (Fed) is expected to cut interest rates by the end of 2024. The narrowing interest rate differential between the US and Japan could help the JPY recover in the coming time. However, to confirm the USD/JPY trend, there needs to be more strong buying signals from the market.
Why is the Japanese Yen weakening?
The Japanese Yen continues to depreciate due to fluctuations in the global economic and financial environment. Former US President Donald Trump's statement about counterpart tariffs initially caused concern, but the lack of specific details made investors less worried, reducing demand for the JPY.
In addition, the Japanese economy recovered strongly with a positive GDP in the fourth quarter, boosting expectations that the Bank of Japan (BoJ) will raise interest rates. The market valued interest rates at around 37 basis points at the end of the year, pushing Japanese bond yields to their highest level since 2010.
Meanwhile, US economic data is in contrast with falling retail sales and stagnant inflation, increasing the likelihood of the Fed cutting interest rates in September or October. Some Fed officials also have different views, but the market expects the Fed to cut by 40 basis points in 2025. This has caused US bond yields to fall, narrowing the US-Japan interest rate gap, which could support the JPY's recovery.
Investors are watching Empire State Manufacturing Index data and comments from Fed officials to assess the USD and USD/JPY trends.
According to Lao Dong at 12:00 on February 18, 2025, the Yen increased to 152.071 USD/JPY.
