• USD/JPY falls to around 156.70 on Friday, down 0.60% in a cautious market environment.
• Explicit intervention warnings from Japan’s Finance Minister support the Japanese Yen.
• Expectations of a delayed Bank of Japan rate hike and a resilient US Dollar limit the downside.

USD/JPY trades around 156.70 on Friday at the time of writing, retreating as the Japanese Yen (JPY) regains strength. The corrective move follows strong warnings from Finance Minister Satsuki Katayama, who stressed that Japanese authorities stand ready to take “appropriate action” against excessive currency volatility. The comments fuel speculation that Japan may intervene directly in the foreign exchange market, providing a clear boost to the Japanese Yen.

Risk sentiment also remains fragile, with Equity markets adopting a more defensive tone, which increases demand for the JPY as a safe-haven currency. Fresh inflation data from the Statistics Bureau showed the Consumer Price Index (CPI) rising 3.0% YoY in October, while the core gauge closely watched by the Bank of Japan (BoJ) reached 3.1%. Persistently high inflation well above the BoJ’s 2% target keeps expectations alive for a near-term interest rate hike.

BoJ Governor Kazuo Ueda has highlighted the growing impact of Japanese Yen weakness on import costs and domestic price pressures, reinforcing the argument for a gradual normalization of policy. However, uncertainty remains elevated as Prime Minister Sanae Takaichi pursues an expansionary fiscal stance and favors keeping interest rates low to support growth.

Meanwhile, Japan’s cabinet approved a large ¥21.3 trillion stimulus package, including ¥17.7 trillion in general account spending and ¥2.7 trillion in tax cuts. This is the most substantial stimulus since the pandemic and raises concerns over Japan’s already fragile fiscal position, potentially reducing pressure on the BoJ to tighten policy and tempering the Japanese Yen’s upside.

In the United States (US), the US Dollar (USD) remains mildly supported by Thursday’s employment data. The Nonfarm Payrolls (NFP) report showed 119,000 jobs added in September, well above expectations. Although the Unemployment Rate edged up to 4.4%, the figures ease fears of a sharp labor-market slowdown and reduce the likelihood of a Federal Reserve (Fed) rate cut in December. The Fed Minutes also revealed that many FOMC members prefer to pause for now, helping limit the US Dollar’s downside.