The USD/JPY pair trades on a flat note near a multi-decade high of around 161.75 during the early Asian trading hours on Thursday. The potential upside for the pair might be limited amid heavy speculation of imminent currency intervention from Japanese authorities.
Japan’s Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent agreed to take steps on currencies if necessary. This development has fueled intense market speculation regarding a joint US-Japan currency intervention, supporting the Japanese Yen (JPY) and creating a headwind for the pair. Also, Japan’s Chief Cabinet Secretary Minoru Kihara said on Tuesday that he will take appropriate action against the foreign exchange moves if needed.
On the other hand, hawkish signals from the US Federal Reserve (Fed) could lift the Greenback. The Fed decided to hold its benchmark interest rate steady between 3.50% and 3.75% at its June policy meeting. Kevin Warsh, in his first press conference as chairman, said during the press conference that “price stability” would be the Fed’s guiding principle.
Markets are now pricing in a 34.2% chance of a 25 basis points (bps) hike at the July meeting, up from 8.5% a week ago, and 66.4% for September, up from 29.1%, according to the CME FedWatch tool.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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