Euro softens against Japanese Yen as traders on alert for possible intervention

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The EUR/JPY cross loses ground to around 184.85 during the early European trading hours on Tuesday. The Japanese Yen (JPY) rebounds against the Euro (EUR) as traders on alert for possible intervention from Japanese authorities.

EUR/JPY weakens to near 184.85 in Tuesday’s early European session.
Japan’s Katayama said the government was ready to take appropriate action against excessive currency moves.
Traders reduce their bets on the ECB rate hikes this year.

Japanese Finance Minister Satsuki Katayama on Tuesday reiterated the authorities stood ready to respond appropriately at any time. Meanwhile, Chief Cabinet Secretary Minoru Kihara said that the Japanese government will work to build an economy less vulnerable to foreign-exchange volatility while remaining prepared to intervene in currency markets if necessary. Kihara also declined to comment on the Japanese Yen’s current level.

"It's a question of when, not if, the Ministry of Finance (MOF) intervenes again to support the yen," said Carol Kong, currency strategist at Commonwealth Bank of Australia.

ECB President Christine Lagarde said in a speech opening her institution’s annual retreat on Monday that Europe is becoming less vulnerable to outside shocks thanks to a better financial framework and progress on the green transition. Lagarde emphasized that tensions subside amid a peace deal, which is “far from assured.” Policymakers must decide whether further monetary tightening is needed.

Markets have pared expectations for future ECB rate increases as energy prices retreat. Oxford Economics and Capital Economics expect the ECB won’t raise the interest rates further, though investors are still pricing one more quarter-point move, which would bring the deposit rate to 2.50%.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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.