USD/JPY dives to 155.50 lows on another alleged intervention

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The US Dollar (USD) plunged nearly 200 pips against the Japanese Yen (JPY) in the early European session on Friday, likely due to another intervention by Japanese authorities.

USD/JPY drops nearly 200 pips to 155.50 lows in another alleged intervention.
A Japanese official warned about further action as the country heads into the Japanese Golden Week.
The pair plunged 2.4% on Thursday after reaching 160.00, which is considered the trigger level for Tokyo to act.

The US Dollar (USD) plunged nearly 200 pips against the Japanese Yen (JPY) in the early European session on Friday, likely due to another intervention by Japanese authorities. The pair retreated to session lows at 155.50 from the 157.30 area in a matter of minutes with no fundamental reason to justify the move.

The Greenback had pared some of Thursday’s losses on Friday’s Asian session, but investors were on edge about the possibility of a further intervention, as a senior Japanese official warned about further action, while the country is heading into Japan’s Golden Week holiday.

The pair had dropped by 2.4% the previous day, due to an alleged intervention by the Japanese Ministry of Finance, after breaching the 160.00 level, considered a line in the sand for Tokyo.

Japan does not inform about interventions, but the Japanese Finance Minister, Satsuki Katayama, affirmed on Thursday that the authorities were getting closer to taking decisive action in the Foreign Exchange Market to stem unwanted Yen volatility.

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.