USD/JPY advances above 156.50 as risk-on sentiment undermines Japanese Yen

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The USD/JPY pair gains ground to near 156.65 during the early Asian session on Wednesday. The Japanese Yen (JPY) softens against the US Dollar (USD) as the impact of the shock US capture of Venezuelan President Nicolas Maduro over the weekend was short-lived, undermining the safe-haven currency.

USD/JPY edges higher to around 156.65 in Wednesday’s early Asian session.
Risk-on sentiment in the marketplace weighs on safe-haven currencies, such as Japanese Yen.
Fed's Miran said he wants jumbo rate cuts this year.

The US carried out a large-scale military strike against Venezuela on Saturday. Nonetheless, markets are largely shrugging off events in Venezuela, after a US raid led to the capture of Venezuelan President Nicolas Maduro and his wife. Cooling demand for safe-haven assets amid the risk-on sentiment weighs on the Japanese Yen and creates a tailwind for the pair.

Furthermore, the uncertainty over the timing of the next Bank of Japan (BoJ) rate hike also exerts some selling pressure on the JPY. BoJ Governor Kazuo Ueda said on Monday that rate increases will continue if economic and price trends align with the central bank's forecasts of a sustained inflation cycle. Most analysts anticipate the next hike around mid-year, after the spring "shunto" wage negotiations confirm solid wage increases.

On the other hand, dovish comments from Federal Reserve (Fed) officials might undermine the Greenback. Fed governor Stephen Miran, whose term ends at the end of January, noted on Tuesday that the US central bank needs to cut interest rates aggressively this year to keep the economy moving forward. Meanwhile, Minneapolis Fed President Neel Kashkari stated that he sees a risk that the jobless rate could "pop" higher.

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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