The Japanese Yen rose against the US Dollar, which weakened due to falling US Treasury yields. This shift comes amid political uncertainty in Japan after the ruling coalition lost its majority, potentially affecting expected economic reforms. There are growing concerns about how Japan’s political situation may impact economic policies and coordination with the Bank of Japan. The USD/JPY rate fell to around 147.30 as the US Dollar Index dropped below 98.00, decreasing by nearly 0.75%.

Focus On Economic Data

Attention turns to recent comments by Scott Bessent, who criticized the Federal Reserve’s effectiveness and urged for lower interest rates to help the economy. There is also a keen interest in upcoming economic data from Japan and the US, including the Jibun Bank Flash Manufacturing PMI and the US S&P Global PMI. Economic reports, such as the Tokyo Consumer Price Index, could significantly affect the Yen in the short term. The Bank of Japan is shifting away from its ultra-loose policy in 2024, as the Yen depreciated and inflation exceeded the 2% target due to rising global energy prices and wage growth. This policy change has helped the Yen recover strength after its previous decline. We see the current situation as favorable for a bearish outlook on the USD/JPY pair. The main factor is the weakening US Dollar, which is reacting to the drop in Treasury yields. This backdrop suggests that strategies focusing on further declines in the currency pair are wise.

Market Intervention And Volatility

It’s important to note that despite strong arguments for Yen strength, the USD/JPY pair recently surged past 160 before suspected government intervention. Japan’s Ministry of Finance indicated interventions exceeding 9 trillion yen in April and May, which adds to market volatility. This situation makes buying put options on the USD/JPY pair an appealing strategy to guard against sudden declines driven by policy changes. A prominent hedge fund manager’s call for lower US rates contrasts with current market behavior, as ongoing inflation keeps the Federal Reserve cautious. The latest US Consumer Price Index reported an annual rate of 3.4% in April 2024, strengthening the central bank’s “higher-for-longer” approach. This tension is a source of volatility, allowing traders expecting a sharp price move to consider straddles or strangles. In Japan, political complexities remain a challenge for aggressive policy tightening. Recently, the “Shunto” spring wage negotiations led to the largest pay increases in over 30 years. However, the latest Tokyo CPI data slightly missed the Bank of Japan’s 2% target. This indicates that the Bank may proceed cautiously, limiting the Yen’s chances for sustained appreciation and capping potential gains for bearish USD/JPY strategies. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now