The downward trend of the US dollar and the yen remains unchanged, and the yen may now be a good opportunity to buy the bottom.
2025-09-24 16:28:06
On Wednesday (September 24th) in the Asia-Europe session, the USD/JPY pair remained strong, rising 0.31% to trade around 148.09. The yen has recently maintained a range-bound trend.
Powell's hawkish remarks early this morning caused the US dollar to rise slightly, further pushing the USD/JPY exchange rate to rise moderately during the day. At the same time, the (PMI) released by Japan at 8:30 in the morning performed worse than expected, causing the Nikkei 225 stock index to fall, and the yen also fell moderately.
Trading institutions warn that foreign investors have been buying Japanese stocks heavily over the past few quarters due to the continuous rise in the Nikkei 225. This may lead to increased foreign exchange hedging of these stocks, triggering a sell-off in the yen. Meanwhile, falling short-term government bond yields will reduce foreign investors' interest in exchanging foreign currency for Japanese government bonds, weighing on the yen. However, diverging policy expectations between the Bank of Japan and the Federal Reserve, as well as political transitions in Japan, may limit the decline of the low-yielding yen.
The US dollar attracted some buying during the Asian and European sessions on Wednesday. At present, the US dollar has temporarily halted its two-day correction since hitting a one-week high on Monday after a speech by Federal Reserve Chairman Jerome Powell on Tuesday. Powell pointed out that policymakers face a complex situation when balancing "prioritizing fighting inflation" and "ensuring stable employment."
Powell further stated that excessively loose policies could lead to a failure to fully address inflation, necessitating a policy reversal. These comments dampened market expectations for more rate cuts in the coming months, boosting demand for the dollar and helping the USD/JPY exchange rate regain upward momentum after a two-day correction.
Traders are currently focusing on U.S. new home sales data due later in the North American trading session for short-term trading guidance, but the core market focus remains on key U.S. macroeconomic data due later this week, including the final GDP reading and the personal consumption expenditures (PCE) price index.
S&P Global's preliminary reading of Japan's manufacturing PMI fell from 49.7 in August to 48.4 in September, marking the biggest drop since March and the 14th time in the past 15 months that the index has fallen into contraction territory. This put downward pressure on the yen during Wednesday's Asian trading session. The Nikkei 225 stock index fell in response, and the yen also fell modestly.
Former Bank of Japan member Andachi said that the Bank of Japan may raise its economic and price forecasts in its October quarterly outlook report. If strong GDP growth in the second quarter prompts the central bank to raise its economic growth and price forecasts, the possibility of the Bank of Japan raising interest rates in October cannot be ruled out. If the Bank of Japan pays attention to risks, it may postpone the rate hike to March next year. A rate hike by the Bank of Japan to 0.75% may not cause much damage to Japan's economic growth.
Given the resilience of the Japanese economy, investors are still pricing in the possibility of a 25 basis point rate hike by the Bank of Japan in October. This expectation stands in stark contrast to the Federal Reserve's dovish policy shift. This deepening policy divergence may limit significant depreciation of the low-yielding yen.
Furthermore, the Liberal Democratic Party (LDP) leadership election will be held on October 4th. If a dovish candidate is elected, the Bank of Japan's next interest rate hike could be postponed. However, the Bank of Japan has clearly signaled that raising interest rates remains an option if economic and price trends meet expectations.
Despite this, investors remain confident that the Bank of Japan will persist in pushing forward the policy normalization process. This expectation was further confirmed by the fact that hawkish members raised objections to the Bank of Japan's decision to maintain policy unchanged last week.
Furthermore, compared to the Federal Reserve's signal of two more rate cuts for the rest of the year, the stances of the US and Japanese central banks have diverged significantly—a divergence that could curb the dollar's gains and provide support for the low-yielding yen. Meanwhile, geopolitical tensions are expected to limit the yen's decline as a safe-haven currency, exerting upward pressure on the USD/JPY exchange rate.
In addition, traders will also be watching the Tokyo Consumer Price Index (CPI) data released on Friday this week, which may affect market expectations of the Bank of Japan's interest rate hikes and thus influence the yen's performance. Nevertheless, the fundamentals still support yen bulls, so caution is advised before betting on a significant rise in the USD/JPY exchange rate.
Japanese government bond prices rose on Wednesday as traders assessed the economic policies of the prime ministerial candidates. The 10-year JGB yield fell 1 basis point to 1.645%. The 5-year yield fell 0.5 basis points to 1.220% after hitting a 17-year high on Monday. JGBs have been under pressure in recent months due to global concerns about the widening government deficit, domestic political uncertainty, and a reduction in the Bank of Japan's bond purchases.
The decline in short-term government bond yields will also reduce foreign investors' interest in exchanging foreign currency for Japanese government bonds, suppressing the yen.
But Yusuke Matsuo, senior market analyst at Mizuho Securities, believes the growing likelihood of a Koizumi victory could lead to a rapid unwinding of so-called "high-market trades," which bet on rising stocks, a weaker yen and a steeper Japanese government bond yield curve.
Since Shinjiro Koizumi is more inclined to support the Bank of Japan's monetary policy normalization (implying a tendency to raise interest rates) rather than maintaining or expanding easing, this is in stark contrast to Sanae Takaichi's opposition to rate hikes (although Sanae Takaichi seems to have softened her expansionary tone and avoided directly commenting on the Bank of Japan's monetary policy or the possibility of lowering the consumption tax rate), it will be a boost to the yen in the future.
USD/JPY is accelerating towards a breakthrough of the key resistance level of the 200-day simple moving average (SMA) near the 148.00 mark, but the overall exchange rate is still rebounding, which may become a good opportunity for Japanese buyers to buy the yen at a bargain price.
The USD/JPY exchange rate has remained range-bound since early August, forming a rectangular pattern, indicating a period of market consolidation. Furthermore, while oscillators on the daily chart are showing signs of upward movement, USD/JPY remains in a rebound phase, suggesting caution before initiating short-term long positions until the pair breaks above 149.10.
At the same time, there was no significant buying above the 148.00 round number, which also indicates that the currency pair is still biased to the downside.
Therefore, any subsequent upward trend may first face an immediate suppression level near the 148.00 round number mark; after stabilizing, the next resistance range is 148.35-148.40 (the two-week high hit on Monday). If it can confirm that it has stabilized at the 200-day SMA, the USD/JPY exchange rate is expected to climb to the 149.00 mark and then advance to the monthly high (around 149.15 area).
On the other hand, if the exchange rate falls below the Asian trading session low (around 147.50), it may find support at the swing low reached after the Bank of Japan's decision on Friday (around 147.20); this support level is followed by the 147.00 mark. If it falls below this mark, the USD/JPY exchange rate may accelerate its decline to the 146.20 horizontal support level. If the downward trend continues, it may further extend to the 145.50-145.45 range - the lowest level since July 7, reached last Wednesday.
(USD/JPY daily chart, source: Yihuitong)
At 16:16 Beijing time, the USD/JPY exchange rate was 148.09/10.
Powell's hawkish remarks early this morning caused the US dollar to rise slightly, further pushing the USD/JPY exchange rate to rise moderately during the day. At the same time, the (PMI) released by Japan at 8:30 in the morning performed worse than expected, causing the Nikkei 225 stock index to fall, and the yen also fell moderately.
Trading institutions warn that foreign investors have been buying Japanese stocks heavily over the past few quarters due to the continuous rise in the Nikkei 225. This may lead to increased foreign exchange hedging of these stocks, triggering a sell-off in the yen. Meanwhile, falling short-term government bond yields will reduce foreign investors' interest in exchanging foreign currency for Japanese government bonds, weighing on the yen. However, diverging policy expectations between the Bank of Japan and the Federal Reserve, as well as political transitions in Japan, may limit the decline of the low-yielding yen.
Powell's hawkish remarks boosted the dollar
The US dollar attracted some buying during the Asian and European sessions on Wednesday. At present, the US dollar has temporarily halted its two-day correction since hitting a one-week high on Monday after a speech by Federal Reserve Chairman Jerome Powell on Tuesday. Powell pointed out that policymakers face a complex situation when balancing "prioritizing fighting inflation" and "ensuring stable employment."
Powell further stated that excessively loose policies could lead to a failure to fully address inflation, necessitating a policy reversal. These comments dampened market expectations for more rate cuts in the coming months, boosting demand for the dollar and helping the USD/JPY exchange rate regain upward momentum after a two-day correction.
Traders are currently focusing on U.S. new home sales data due later in the North American trading session for short-term trading guidance, but the core market focus remains on key U.S. macroeconomic data due later this week, including the final GDP reading and the personal consumption expenditures (PCE) price index.
Japan's manufacturing PMI falls short of expectations, weighing on the yen
S&P Global's preliminary reading of Japan's manufacturing PMI fell from 49.7 in August to 48.4 in September, marking the biggest drop since March and the 14th time in the past 15 months that the index has fallen into contraction territory. This put downward pressure on the yen during Wednesday's Asian trading session. The Nikkei 225 stock index fell in response, and the yen also fell modestly.
Divergence in US and Japanese monetary policies limits yen's downside
Former Bank of Japan member Andachi said that the Bank of Japan may raise its economic and price forecasts in its October quarterly outlook report. If strong GDP growth in the second quarter prompts the central bank to raise its economic growth and price forecasts, the possibility of the Bank of Japan raising interest rates in October cannot be ruled out. If the Bank of Japan pays attention to risks, it may postpone the rate hike to March next year. A rate hike by the Bank of Japan to 0.75% may not cause much damage to Japan's economic growth.
Given the resilience of the Japanese economy, investors are still pricing in the possibility of a 25 basis point rate hike by the Bank of Japan in October. This expectation stands in stark contrast to the Federal Reserve's dovish policy shift. This deepening policy divergence may limit significant depreciation of the low-yielding yen.
Furthermore, the Liberal Democratic Party (LDP) leadership election will be held on October 4th. If a dovish candidate is elected, the Bank of Japan's next interest rate hike could be postponed. However, the Bank of Japan has clearly signaled that raising interest rates remains an option if economic and price trends meet expectations.
Despite this, investors remain confident that the Bank of Japan will persist in pushing forward the policy normalization process. This expectation was further confirmed by the fact that hawkish members raised objections to the Bank of Japan's decision to maintain policy unchanged last week.
Furthermore, compared to the Federal Reserve's signal of two more rate cuts for the rest of the year, the stances of the US and Japanese central banks have diverged significantly—a divergence that could curb the dollar's gains and provide support for the low-yielding yen. Meanwhile, geopolitical tensions are expected to limit the yen's decline as a safe-haven currency, exerting upward pressure on the USD/JPY exchange rate.
In addition, traders will also be watching the Tokyo Consumer Price Index (CPI) data released on Friday this week, which may affect market expectations of the Bank of Japan's interest rate hikes and thus influence the yen's performance. Nevertheless, the fundamentals still support yen bulls, so caution is advised before betting on a significant rise in the USD/JPY exchange rate.
Rising Japanese government bond yields will put downward pressure on the yen in the short term
Japanese government bond prices rose on Wednesday as traders assessed the economic policies of the prime ministerial candidates. The 10-year JGB yield fell 1 basis point to 1.645%. The 5-year yield fell 0.5 basis points to 1.220% after hitting a 17-year high on Monday. JGBs have been under pressure in recent months due to global concerns about the widening government deficit, domestic political uncertainty, and a reduction in the Bank of Japan's bond purchases.
The decline in short-term government bond yields will also reduce foreign investors' interest in exchanging foreign currency for Japanese government bonds, suppressing the yen.
But Yusuke Matsuo, senior market analyst at Mizuho Securities, believes the growing likelihood of a Koizumi victory could lead to a rapid unwinding of so-called "high-market trades," which bet on rising stocks, a weaker yen and a steeper Japanese government bond yield curve.
Since Shinjiro Koizumi is more inclined to support the Bank of Japan's monetary policy normalization (implying a tendency to raise interest rates) rather than maintaining or expanding easing, this is in stark contrast to Sanae Takaichi's opposition to rate hikes (although Sanae Takaichi seems to have softened her expansionary tone and avoided directly commenting on the Bank of Japan's monetary policy or the possibility of lowering the consumption tax rate), it will be a boost to the yen in the future.
Technical Analysis:
USD/JPY is accelerating towards a breakthrough of the key resistance level of the 200-day simple moving average (SMA) near the 148.00 mark, but the overall exchange rate is still rebounding, which may become a good opportunity for Japanese buyers to buy the yen at a bargain price.
The USD/JPY exchange rate has remained range-bound since early August, forming a rectangular pattern, indicating a period of market consolidation. Furthermore, while oscillators on the daily chart are showing signs of upward movement, USD/JPY remains in a rebound phase, suggesting caution before initiating short-term long positions until the pair breaks above 149.10.
At the same time, there was no significant buying above the 148.00 round number, which also indicates that the currency pair is still biased to the downside.
Therefore, any subsequent upward trend may first face an immediate suppression level near the 148.00 round number mark; after stabilizing, the next resistance range is 148.35-148.40 (the two-week high hit on Monday). If it can confirm that it has stabilized at the 200-day SMA, the USD/JPY exchange rate is expected to climb to the 149.00 mark and then advance to the monthly high (around 149.15 area).
On the other hand, if the exchange rate falls below the Asian trading session low (around 147.50), it may find support at the swing low reached after the Bank of Japan's decision on Friday (around 147.20); this support level is followed by the 147.00 mark. If it falls below this mark, the USD/JPY exchange rate may accelerate its decline to the 146.20 horizontal support level. If the downward trend continues, it may further extend to the 145.50-145.45 range - the lowest level since July 7, reached last Wednesday.
(USD/JPY daily chart, source: Yihuitong)
At 16:16 Beijing time, the USD/JPY exchange rate was 148.09/10.
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