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Japanese Yen recoups roughly 50% of Tuesday decline

November 2, 2023| Forex Market


  • Japanese Yen recovers some of the lost ground after dramatic post-BoJ sell-off.
  • JPY makes back roughly 50% of the losses that incurred in the “Tokyo Chainsaw Massacre” that followed Tuesday’s BoJ meeting.
  • USD/JPY returns and settles on prior highs prompted by investors’ dovish take of Fed Powell’s post-meeting presser. 

The Japanese Yen (JPY) is making back lost ground after the dramatic sell-off registered following the BoJ’s Halloween day meeting, in which it bled over 1% lower versus the US Dollar (USD). The runaway market backtracked on Wednesday and Thursday to fill the inefficiency gap created after Tuesday’s sheer drop – the largest recorded this year. 

The Yen was helped by a weaker US Dollar, which fell after the market’s dovish take of Federal Reserve (Fed) Chairman Jerome Powell’s comments at the press conference following the Fed’s own meeting the day after. With progress being made on inflation and less chance of another interest-rate hike, the Fed chair assessed the “risks” as now “more two sided” and “balanced” than previously. The market took the hint, stocks rallied and the Greenback gave way.

Daily digest market movers: Yen recovers to fill inefficiency gap

  • The Yen climbs halfway out of its grave after taking a beating on October 31 following the Bank of Japan (BoJ) policy meeting.  
  • JPY came under pressure after the Bank of Japan governor Kazuo Ueda played down inflationary risks at the post-meeting presser, saying most inflation was caused by rising input costs due to higher commodity prices, especially of Oil, rather than being “demand driven”. 
  • This suggests the BoJ will need to continue to maintain easy monetary policy and low interest rates going forward – a negative for JPY, since global investors tend to prefer parking their money in currencies which can deliver them higher returns.
  • The Japanese Yen recouped losses against most majors midweek, however, and particularly versus the USD following the Fed meeting on Wednesday. 
  • Fed Chair Jerome Powell said another rate hike was now less likely, saying that whilst it was not out of the question the Fed was no longer committed to the idea. 
  • Powell added progress had been made on dealing with inflation and that risks were broadly balanced either way. 
  • The lower probability that the Fed will raise interest rates pressured the USD lower, due to currency interest-rate sensitivity. 

Japanese Yen technical analysis: USD/JPY recovers midway

USD/JPY – the amount of Yen that one Dollar buys – retreated roughly 50% of the gains made following Tuesday’s BoJ meeting when the pair soared to the 151.70s. 

The pullback is likely only a temporary ‘backing and filling’ story, however, with the overall bias still remaining to the upside. A re-break of the 151.92 highs of 2022 is required to reaffirm the uptrend but now seems likely. 

US Dollar vs Japanese Yen: 4-hour Chart

The pair has pulled back to a confluence of support levels, including the 50% Fibonacci of Tuesday’s dramatic rise, the lower boundary of its ascending channel, and the key October 3 highs. This seems as good a place as any for the bulls to plant their flag and rally for a counter attack.   

US Dollar vs Japanese Yen: Daily Chart

The Moving Average Convergence Divergence (MACD) indicator on the daily chart is showing bearish divergence with price as it failed to make a higher high along with the price on Tuesday. Nevertheless, this is not sufficient on its own to suggest the uptrend has run out of gas.

The “trend is your friend..” and the short, medium and long-term trends remain bullish, suggesting the odds favor higher highs and a continuation onwards and upwards. After the 151.93 high is breached, next targets lie at round numbers – 153.00, 154.00 etc.


Japanese Yen FAQs

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.

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 current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

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 supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against 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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