Introduction

On November 22, 2024, the Japanese yen (JPY) strengthened significantly against major currencies, including the U.S. dollar (USD). This appreciation was driven by recent inflation data, shifting expectations regarding Bank of Japan (BOJ) monetary policy, and increased demand for safe-haven assets amidst global market volatility. This article explores the factors behind the yen’s performance, combining economic data, market sentiment, and policy expectations.

1. Japan’s Inflation Data: Above Target

The release of Japan’s October Consumer Price Index (CPI) highlighted persistent inflationary pressures:

• Headline CPI rose by 2.3% year-on-year, slightly above the expected 2.2%, but down from September’s 2.5%.
• Core CPI (excluding fresh food) remained at 2.3%, above the BOJ’s target for the 18th consecutive month.
• Core-Core CPI (excluding fresh food and energy) increased to 2.3%, up from September’s 2.1%.

This persistent inflation, particularly in the core-core measure, has fuelled speculation that the BOJ may consider tightening its ultra-loose monetary policy in December. Rising inflation above the BOJ’s 2% target has kept expectations for a potential rate hike “on the simmer,” contributing to yen strength.

2. Market Expectations for BOJ Policy Shift

The BOJ has historically maintained a dovish stance, keeping interest rates near zero to stimulate the economy. However, the combination of:

• Persistent inflation above target,
• Renewed currency weakness in recent months, and
• Pressure from global central banks tightening policies

has increased expectations for a policy shift. Analysts believe the BOJ could act as early as December to adjust its forward guidance or introduce gradual rate hikes. Even the mere speculation of such a move has provided support for the yen, as investors anticipate better returns on JPY assets.

3. Risk-Off Sentiment and Safe-Haven Flows

Recent global market volatility has triggered a shift toward safe-haven assets, including the yen:

• Equity Market Uncertainty: U.S. and global equity markets have shown heightened volatility amid concerns about interest rates and slowing global growth.
• Unwinding of Carry Trades: With expectations of higher JPY rates, traders have begun unwinding carry trades, where they borrowed in yen to invest in higher-yielding assets elsewhere. This has led to increased demand for JPY, further strengthening its position.

4. Economic Performance and Indicators

Japan’s broader economic data continues to support the yen:

• GDP Growth: Japan’s economy posted modest growth in Q3, avoiding stagnation fears.
• Employment Stability: Unemployment remains low at 2.4%, supporting domestic demand and a favorable economic outlook.
• Trade Balance: Japan’s trade balance, while slightly in deficit, has shown signs of improvement with steady export performance.

These factors add to the yen’s attractiveness, especially in light of weaker performance from peers like the euro and emerging market currencies.

5. Technical Factors Supporting Yen Strength

From a technical perspective:

• USD/JPY Resistance Levels: USD/JPY faced strong resistance near the 155.00 level, which coincided with speculative selling pressure. The pair retreated sharply to trade below 154.00 on safe-haven demand.
• JPY Momentum: Indicators such as RSI suggest the JPY remains well-positioned for further gains, especially if fundamental conditions align with technical patterns.

Conclusion

The yen’s resurgence on November 22, 2024, is a result of persistent inflationary pressures, rising expectations of a BOJ policy shift, and increased safe-haven demand amid global uncertainty. Japan’s economic resilience, combined with speculative unwinding of carry trades, further bolstered the yen’s strength.

The coming weeks will be crucial as markets monitor BOJ’s December meeting for potential rate hikes or policy adjustments. For now, the yen appears to have regained some of its safe-haven luster, supported by stronger fundamentals and shifting market dynamics.