Increase in USD/JPY shows importance of data and QE speculation

The increase that the U.S. dollar experienced relative to the Japanese yen on Oct. 28 illustrated the key role that both economic data and the stimulus provided by the central banks of different jurisdictions can play in the value of this currency pair.

Knowing about the exchange rate between these two could be helpful to those who want to make money trading the currencies, as they are both considered safe-haven assets by many. In addition, the two nations that issue them – theĀ U.S. and Japan – have some of the largest economies in the world.

Rising value of USD/JPY

The USD/JPY increased to as much as 97.74 early in the session, which represented a gain of 0.35 percent for the day, according to Investing.com. The yen declined relative to many currencies, dropping in value relative to 14 of its 16 major peers, Bloomberg reported.

The Japanese currency fell 0.2 percent relative to the euro, reaching a value of 134.68 relative to the euro, according to the news source. The yen fell by at least 0.3 percent relative to the currencies of South Korea, Brazil, New Zealand and Canada.

Impact of key economic data

Amid these currency fluctuations, the greenback managed to enjoy a slight uptick as global market participants responded to news that U.S. industrial production surpassed expectations in September, according to Investing.com.

However, this encouraging news was not enough to outweigh the impact of lackluster economic data related to the U.S. economy that was released recently, and this information helped to make global market participants even more confident that the Federal Reserve will not announce any plans to taper its existing regimen of bond purchases at the end of its next policy meeting, the media outlet reported.

“We expect little change in the Fed’s statement at the October FOMC meeting,” Barclays strategists wrote in a note sent to clients, according to Reuters. “The soft industrial production report, plus the larger-than-expected decline in pending home sales, is unlikely to give comfort to FOMC policymakers who await stronger economic data before initiating tapering.”

Any further quantitative easing would be considered bearish for the U.S. dollar, as it would cause the money supply to increase. The USD/JPY pair could also be influenced by expectations related to the asset purchases of the Bank of Japan, and deputy governor Kikuo Iwata stated on Oct. 27 that until the central bank of this Asian nation manages to create its desired level of inflation, the financial institution will continue to purchase bonds, according to Bloomberg.

The BOJ has specifically stated that in two years, it wants to have an inflation rate of two percent, Reuters reported. As a result, it is expected that this financial institution will decide to maintain its existing stimulus at the conclusion of its upcoming meeting on monetary policy.

“Market dynamics are still being driven by investors pushing back expectations of when the Fed may begin to taper,” Lee Hardman, who works in London as a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., told the news source. “Given the low yielding nature of the yen and the very aggressive easing policy that the BOJ’s implementing, that makes the yen still a very attractive funding currency. We’d expect that the yen will tend to underperform.”

The timeline that the Fed will use to taper its bond purchases has been a key concern for global market participants for several months. While there have been significant worries in recent months that the reduction of this stimulus would be announced, many market experts have started feeling fairly certain that this tapering will be put off for some time as a result of the economic headwinds that have been caused by both the partial shutdown of the U.S. government and also the debt dilemma.