USD/JPY corrects further to near 155.80, gives up entire BoJ policy-led gains

Japanese Yen Price This week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the US Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.66%	-0.95%	-1.11%	-0.88%	-1.51%	-1.75%	-0.95%
EUR	0.66%		-0.29%	-0.51%	-0.23%	-0.87%	-1.11%	-0.31%
GBP	0.95%	0.29%		-0.11%	0.06%	-0.58%	-0.81%	-0.01%
JPY	1.11%	0.51%	0.11%		0.28%	-0.35%	-0.59%	0.07%
CAD	0.88%	0.23%	-0.06%	-0.28%		-0.56%	-0.87%	-0.07%
AUD	1.51%	0.87%	0.58%	0.35%	0.56%		0.05%	0.57%
NZD	1.75%	1.11%	0.81%	0.59%	0.87%	-0.05%		0.82%
CHF	0.95%	0.31%	0.00%	-0.07%	0.07%	-0.57%	-0.82%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

The pair has given up its entire gains made following the monetary policy announcement by the Bank of Japan (BoJ) on Thursday, in which it raised interest rates by 25 basis points (bps) to 0.75%. The Japanese Yen (JPY) fell sharply as the BoJ didn’t provide guidance on the scope and timeframe for further interest rate hikes.

Meanwhile, the Yen has been gaining higher this week due to threats of intervention by Japan’s Finance Minister (FM) Satsuki Katayama against excessive one-sided moves.

Going forward, the Japanese Yen will be influenced by the Tokyo Consumer Price Index (CPI) data for December, which will be released on Friday. Tokyo CPI ex. Fresh Food is expected to have grown at an annualized pace of 2.5%, slower than 2.8% in November.

In addition to Yen’s recovery, persistent weakness in the US Dollar (USD) due to firm Federal Reserve (Fed) dovish expectations for 2026 has also strengthened the pair. The CME FedWatch tool shows the odds of the Fed reducing interest rates at least 50 bps in 2026 are 70.6%.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.