Japanese Yen stays firm amid safe-haven flows, intervention fears; lacks follow-through

The Japanese Yen (JPY) retains its bullish bias through the early European session on Monday, though it lacks bullish conviction amid a combination of diverging forces.

The Japanese Yen kicks off the new week on a positive note amid a combination of factors.
Reviving safe-haven demand benefits the JPY amid renewed government intervention fears.
A modest USD downtick further weighs on USD/JPY, though the downside seems cushioned.

The Japanese Yen (JPY) retains its bullish bias through the early European session on Monday, though it lacks bullish conviction amid a combination of diverging forces. Rising tensions between the US and Venezuela, along with concerns about renewed Israel-Iran conflict and persistent uncertainties stemming from the protracted Russia-Ukraine war, underpin the JPY's safe-haven status. Furthermore, comments from Japan’s top foreign exchange official, Atsushi Mimura, fueled speculation about a possible government intervention and provided an additional lift to the JPY.

Meanwhile, Bank of Japan (BoJ) Governor Kazuo Ueda left the door open to further tightening, though he remained vague on the exact timing and pace of future rate hikes. Adding to this, worries about Japan's worsening fiscal condition, aggravated by the recent steep rise in Japanese government bond (JGB) yields, cap gains for the JPY. However, a modest US Dollar (USD) downtick keeps the USD/JPY pair depressed below mid-157.00s and warrants caution before positioning for an extension of Friday's post-BoJ rise to the 158.00 neighborhood, or a multi-month peak touched in November.

Japanese Yen sticks to gains amid reviving safe-haven demand, intervention fears

Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, said on Monday that he is concerned about one-way moves and warned of appropriate action against an excessive decline in the Japanese Yen.
The US intercepted a Venezuelan oil tanker over the weekend and is in active pursuit of a third in less than two weeks. This comes after US President Donald Trump last week ordered a blockade of sanctioned tankers entering and leaving Venezuela.
Israel's Prime Minister Benjamin Netanyahu said that officials are concerned that Iran is reconstituting nuclear enrichment sites and are preparing to brief Trump on options for attacking the missile program again, NBC News reported on Saturday.
Russian President Vladimir Putin’s top foreign policy aide said on Sunday that changes made by the Europeans and Ukraine to US proposals did not improve prospects for peace. This contributes to driving safe-haven flows towards the JPY.
The Bank of Japan, as was widely expected, raised its policy rate to 0.75%, or a 30-year high, at the end of the December meeting on Friday and reiterated that it would continue to hike rates if the economy and prices move in line with forecasts.
In the post-meeting press conference, BoJ Governor Kazuo Ueda said that the central bank will closely look at the impact of the latest interest rate change, and the pace of monetary adjustment will depend on economic, price, and financial outlooks.
Ueda, however, did not offer clarity on future hikes. Moreover, concerns about Japan's worsening fiscal health – led by a sharp rise in Japanese government bond yields and Prime Minister Sanae Takaichi's spending plan – might cap gains for the JPY.
The recent hawkish comments from influential Federal Reserve officials pushed the US Dollar to a one-week high on Friday and should contribute to limiting any meaningful corrective slide for the USD/JPY pair, warranting caution for bears.
In fact, Cleveland Fed President Beth Hammack said that monetary policy is in a good place to pause and assess the effects of 75 basis points (bps) of interest rate cuts on the economy during the first quarter, Bloomberg reported on Sunday.
Traders, however, are still pricing in a greater possibility of two more interest rate cuts by the US central bank in 2026. This keeps a lid on a further USD appreciating move ahead of the delayed US Q3 GDP growth figures on Thursday.

USD/JPY needs to weaken below 157.00 to back the case for any further losses

Friday's breakout through the 156.95-157.00 horizontal barrier was seen as a fresh trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought zone. This, in turn, suggests that any subsequent fall is more likely to attract fresh buyers near the said resistance breakpoint. Some follow-through buying, however, could pave the way for deeper losses towards the 155.50 intermediate support en route to the 155.00 psychological mark. The latter should act as a key pivotal point, which, if broken, might shift the bias in favor of bearish traders.

On the flip side, bulls might await a sustained move beyond the 157.85-157.90 region, or the multi-month top, before placing fresh bets. The USD/JPY pair might then accelerate the positive move towards the next relevant hurdle near the 158.45 area before aiming to challenge the year-to-date peak, around the 159.00 neighborhood, touched in January.

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.