Yen Scales Against the Dollar Despite BoJ’s Overly Accommodating Stance

On Wednesday, the Japanese yen experienced a rise in value against the US dollar. The weakening of the greenback allowed for this gain.

Despite recent slight adjustments made by the Bank of Japan towards policy normalization, the central bank remains one of the most accommodating among developed countries. As a result, the yen often reacts to external factors, particularly those coming from the United States.

Yen Perseveres Against the Dollar Amid Treasury Yield Drop

The decline in the USD/JPY exchange rate on Wednesday correlated with a 2% drop in the 2-year Treasury yield. The latest 2-year Treasury auction revealed an increase in the bid-to-cover ratio, jumping to 2.94 from 2.71.

This ratio is used as a measure of demand and was the highest it has been since April 2020. This suggests that participants may be looking to secure a high rate in anticipation of a potential decrease in yields in the future, which could be a result of a recession.

This auction took place before the release of important US economic data later in the day. At 13:30 GMT, the first estimate for fourth-quarter GDP was released, showing the US economy growing at a rate of 2.6% quarter-over-quarter, slower than the 3.2% growth seen in Q3.

A weaker outcome could lead to further speculation about Federal Reserve rate cuts later in the year and a subsequent drop in US bond yields, potentially pushing the USD/JPY exchange rate lower.

In Thursday’s Asia-Pacific trading session, the economic calendar is relatively quiet. As such, traders will likely focus on their risk appetite. Wednesday’s Wall Street trading session saw the Dow Jones, S&P 500, and Nasdaq 100 finish mostly flat, indicating that markets may be consolidating until further key US GDP data is released.