Japanese Yen edges higher from 160.00 amid PM Takaichi’s intervention warning

Holding firm above 159.80, USD/JPY retreats from two-week highs beyond the crucial 160.00 mark.
Prime Minister Takaichi issues an explicit intervention warning as the Japanese Yen weakens.
The Yen has come under heavy pressure this week as US yields surge and BoJ officials strike a dovish tone.

Pressure persists on the Japanese Yen (JPY) on Friday, leaving it hovering just a few pips from the crucial 160.00 mark against the US Dollar (USD). A sharp recovery in US Treasury yields has weighed on the currency, prompting Japanese Prime Minister Sanae Takaichi to warn of intervention earlier in the day.

With Federal Reserve (Fed) speakers signalling scope for an outsized December rate hike, USD/JPY extended its decline at a faster pace this week. US inflation figures published on Tuesday showed price pressures continuing to intensify, remaining well above the central bank’s 2% price-stability target.

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Could Fed officials opt for a 50-basis-point hike?

Earlier, Fed Governor Christopher Waller had argued that, given elevated inflation, “hiking only 25 basis points would put our credibility at risk”. Dallas Fed President Lorie Logan echoed that position a few days later, asserting that “the FOMC needs to implement at least two more 25-basis-point rate increases.”

A half-point increase at the December 9 meeting now carries a market-implied probability of 13.3%, up from 0% last week, according to CME’s FedWatch tool. The repricing has lifted the two-year government bond yield by 35 basis points this week, while the benchmark 10-year yield has climbed 25 basis points to move back above 5%.

As US Treasury yields have rallied, the US Dollar has strengthened across the board, putting the Japanese Yen under severe pressure. Dovish remarks from Bank of Japan (BoJ) official Taichiro Asada have also weighed on the currency: on Thursday, he cautioned about the economic risks of increasing borrowing costs too quickly.

With these developments in the background, Japanese Prime Minister Sanae Takaichi stated earlier on Friday that authorities in Tokyo are “closely monitoring markets” and that the government “will strive to preserve orderly forex markets,” signalling that the Ministry of Finance stands ready to intervene in support of the Yen. Her additional remarks about being in contact with US financial authorities suggested that coordinated action remains possible, similar to the intervention that lifted the JPY in late July.

Japanese Yen: frequently asked questions

Which factors influence the Japanese Yen’s value?

Among the most actively traded currencies globally, the Japanese Yen (JPY) takes its broad direction from Japan’s economic performance. More specific influences include the Bank of Japan’s policy stance, the gap between Japanese and US bond yields, and traders’ appetite for risk, alongside other factors.

Why do Bank of Japan decisions matter for the Japanese Yen?

Currency control forms part of the Bank of Japan’s mandate, making its actions an important influence on the Yen. Direct intervention in currency markets has occasionally been used by the BoJ, usually to weaken the currency. However, political concerns among Japan’s principal trading partners discourage frequent intervention. Between 2013 and 2024, the BoJ’s ultra-loose monetary stance drove the Yen lower against its major currency peers as its policy increasingly diverged from that of other leading central banks. The subsequent gradual withdrawal of this ultra-loose stance has provided the Yen with some support.

Why does the Japan-US bond yield gap affect the Japanese Yen?

By maintaining ultra-loose monetary policy over the past decade, the BoJ increasingly diverged from other central banks, most notably the US Federal Reserve. The resulting widening in the yield gap between 10-year US and Japanese bonds favoured the US Dollar over the Japanese Yen. That gap is now narrowing following the BoJ’s 2024 decision to phase out its ultra-loose stance, alongside interest-rate reductions by other major central banks.

How does the Japanese Yen respond to changes in risk sentiment?

Investors often regard the Japanese Yen as a safe-haven asset, making them more inclined to move funds into the currency during periods of market stress because of its perceived dependability and stability. As a result, turbulence is likely to lift the Yen against currencies considered riskier investments.