The Japanese Yen keeps sliding after the Bank of Japan's split vote
- USD/JPY rises for a fifth session in six after the Bank of Japan's split vote.
- Tokyo markets shut until Thursday, when the new 1.25% rate takes effect.
- Japan spent ¥15.4 trillion buying Yen between July 30 and August 26.
Japan's markets are shut from Monday to Wednesday for national holidays, which is when a government that wants to move its currency gets the most for its money. USD/JPY is higher for a fifth session in six and is trading just below 157.50. On Friday the Nikkei reported that Japanese officials had called banks to check exchange rates, a step that often comes before Japan buys Yen.
The Fed and the Bank of Japan each added a quarter-point, and the gap ends up where it was
The Bank of Japan (BoJ) raised its rate to 1.25% from 1% on September 18, the highest since 1995, and the Yen fell on the decision anyway. BoJ board members Asada and Sato voted against, saying inflation under 2% and an economy that hasn't sped up don't justify an increase. Traders had been buying the Yen on the expectation of more increases, and two votes against this one made that harder to believe.
Japan's core inflation rate, which leaves out fresh food, came out at 1.7% for August on the day of the decision, down from 1.8%. That's the measure board member Asada cited for his vote. Board members Takata and Tamura voted for the increase and then objected that the BoJ's own forecast understates inflation. A board that disagrees in both directions gives no date for the next increase, and a date is what Yen buyers are waiting for.
The Fed raised its rate to 3.75-4.00% on September 16. Once the BoJ's increase takes effect, the Fed's rate will still be 2.50 to 2.75 points above the BoJ's, the same gap as before either meeting. That gap is what you're paid for holding Dollars instead of Yen, and an intervention doesn't change it. St. Louis Fed President Musalem said on Monday that the Fed's rate still isn't high enough to slow the US economy, and the BoJ said on Friday that its new rate will keep supporting Japan's.
Japan bought Yen on two days of Golden Week, and Tokyo is shut until Thursday
Japan's Ministry of Finance decides when to buy Yen, and the BoJ carries it out. Finance Minister Katayama said in July that Japan would act whenever it needed to, including during US market holidays. Japan bought Yen on May 4 and May 6, during Golden Week, when Tokyo's markets were shut. Fewer people trade Yen while Tokyo's banks and exporters are away, so the same amount of official buying moves the price further, and they're away again until Thursday.
The ministry spent ¥15.4 trillion between July 30 and August 26, its largest monthly amount on record, and the US bought Yen alongside Japan on July 31 for the first time since 1998. USD/JPY had reached just under 164.00 in July, the Yen's weakest since 1986, before the buying began. It now trades about where it was at the end of July 31, the day the US joined in.
Nine Fed speeches and one Japanese survey between Tuesday and Friday
Japan's first release after the holiday is the Jibun Bank Purchasing Managers Index (PMI) at 00:30 GMT on Thursday. It's an early survey of company purchasing managers, and a reading over 50 means growth. A strong number supports another BoJ increase, and doubt about another increase is what pushed the Yen down after the decision. The two board members who voted against said the economy hadn't sped up enough to justify an increase, and the manufacturing reading is forecast at 55.
The US versions of the same surveys are due on Wednesday at 13:45 GMT, where the services reading is expected to ease to 56 from 56.5. Weekly jobless claims follow on Thursday at 12:30 GMT, expected at 203K after 196K, and Friday's durable goods orders, also at 12:30 GMT, are expected to fall 0.3% after a 1.1% rise. New York Fed President Williams gives three of the nine Fed speeches, on Tuesday, Thursday and Friday. Anything that makes an October Fed increase more likely would widen the gap in the Dollar's favour.
Speculators had 120.4K more futures contracts on a stronger Yen than on a weaker one going into the BoJ meeting, according to the Commodity Futures Trading Commission (CFTC). The CFTC publishes its next count on Friday at 19:30 GMT, covering Tuesday, in the middle of the holiday, and every bet cut since the meeting means Yen sold. Thursday is also when Tokyo's traders return and the BoJ's new rate takes effect, which ends the thin trading that makes Japan's buying go further.
Levels and bias
Resistance: The session high just above 157.50 is right under the 200-day average, which has capped every daily close since early September. Friday's high just above 158.00 is where the rally turned back on the day of the Nikkei's rate-check report.
Support: The pair is holding above 156.50 on Monday, and below that, 156.00 is where it was trading before the BoJ decision. Further down, 155.00 is where it was before the Fed's increase on September 16.
Bias: Bearish under 158.00, first toward 156.00 and then 155.00. On the daily chart, the Stochastic Relative Strength Index (Stoch RSI), a gauge of momentum, is near 27 and just turning up from the bottom of its range, which favours the Dollar, so the call depends on 158.00 holding. A daily close over 158.00 ends it, because that would put the pair above both Friday's high and its 200-day average.
GBP/USD daily chart
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
