USD/JPY bounces up and nears 157.00 with BoJ intervention looming

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.

The US Dollar picks up against a weaker Yen and reaches session highs at above 156.90.
Concerns about the Japanese cabinet's fiscal largesse keep weighing on the Yen.
Growing hopes of Fed cuts are keeping the US Dollar from rallying further

News that Japan’s cabinet approved a 21 trillion Yen (USD 135 billion) stimulus package on Friday reactivated fears about the country’s already strained public finances.

The pair, however, retreated on Friday after the Japanese Finance Minister Takayama reiterated her concern about excessive volatility and speculative movements on FX markets, and warned that Japanese authorities will take “appropriate action”, the most clear intervention threat so far this year.

The BoJ might step in to stem JPY weakness

Investors remain selling the Yen on Monday, hopeful that the Bank of Japan will wait until the end of the week to intervene in FX markets. The central bank usually acts at moments of low market liquidity to optimise the impact of its actions, and this week, the US Thanksgiving festivity offers a great opportunity.

The US Dollar, in turn, remains soft amid the combination of renewed hopes of Federal Reserve monetary easing and the brighter market sentiment.

New York Fed President John Williams boosted investors’ optimism on Friday, affirming that the central bank has some margin to ease monetary policy further without putting its inflation goals at risk, which prompted investors to ramp up expectations of a 25 basis points cut in December. The comments added pressure on the US Dollar on Friday.