USD/JPY gains above 158.50 as US Jobless Claims support US Dollar

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The USD/JPY pair posts modest gains near 158.65 during the early Asian trading hours on Friday. The US Dollar (USD) strengthens against the Japanese Yen (JPY) as US Initial Jobless Claims fall. The US December Industrial Production report is due later on Friday.

USD/JPY trades with mild gains around 158.65 in Friday’s early Asian session.
US Jobless Claims unexpectedly fell last week, boosting Fed rate hold expectations.
Potential fiscal policies by Takaichi undermine the Japanese Yen, but intervention fears might cap its downside.

Data released by the US Department of Labour (DOL) on Thursday showed that the number of Americans filing new applications for unemployment benefits unexpectedly dropped to 198K for the week ending January 10. This figure came in lower than the market consensus of 215K and was lower than the previous week’s 207K (revised from 208K).

This report further boosts expectations that the Fed will keep rates on hold for the next several months, which provides some support to the Greenback. Fed funds futures have pushed back bets for the next rate cut to June due to the improving labor data and as Fed policymakers continue to express concern about still sticky inflation.

Concerns that Japanese Prime Minister Sanae Takaichi will have more leeway to implement more fiscally expansionist policies weigh on the JPY and create a tailwind for the pair. Takaichi plans to dissolve parliament next week and call a snap parliamentary election to consolidate her power.

“If Takaichi's Liberal Democratic Party secures a majority in the Lower House, the yen is likely to weaken further,” said Alex Loo, TD Securities analyst.

Meanwhile, intervention fears from Japanese authorities might cap the downside for the JPY. Japan’s Finance Minister Satsuki Katayama issued another verbal warning on Wednesday, saying officials would take "appropriate action against excessive FX moves without excluding any options."

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.

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