160.00: Yen stalls as Tokyo issues warning before Japan’s growth data

160.00 reached: USD/JPY stalls after its first touch since early September.
5% surpassed by US 10-year yields as Tokyo warns of excessively rapid Yen moves.
Friday brings US producer price data; Japan's growth release follows on Sunday.

USD/JPY reached 160.00 on Thursday. It was the first touch since early September of a level at which Japan has bought Yen twice this year. The pair failed to hold above it: after a session high marginally over that mark, it is trading just below, almost unchanged from its opening price. The last sizeable move remains Wednesday's breakout from its range.

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Recent currency moves have been too rapid, Japan's Vice Finance Minister for International Affairs Mimura said on Thursday, warning that the summer's intervention should not be forgotten. Between July 30 and August 3, Japan spent a record JPY 15.4 trillion. On Thursday, the New York Fed confirmed that the US Treasury had purchased Yen in the third quarter. The intervention drove USD/JPY from close to 164.00 to around 155.00; the pair has since returned to within about four Yen of its starting point.

Markets have fully priced in a Fed rate increase on December 9. Following weak demand at a 30-year auction, the 10-year Treasury yield climbed to around 5.12% on Thursday. Although the Dollar strengthened against the Euro, the Pound and the Kiwi, USD/JPY was unchanged. The Bank of Japan (BoJ) rate stands at 1.25%, compared with the Fed's 3.75%-4.00%.

0.4% producer price forecast leads the calendar

Thursday's schedule includes a speech by New York Fed President Williams at 23:30 GMT. Attention then turns to Friday's US producer price data at 13:30 GMT. A monthly increase of 0.4% is forecast, following 1.3%, with implications for the size of the Fed's December rate rise.

At 23:50 GMT on Sunday, Japan releases preliminary third-quarter Gross Domestic Product (GDP). Quarterly growth is forecast at 0.1%, down from 0.4%. A speech by BoJ board member Takata follows at 04:00 GMT on Monday; he voted for a rate increase on October 30. October national inflation is then due at 23:30 GMT on Thursday, November 19. These three events all precede the BoJ's December 18 decision, at which a rate rise is widely expected.

157.00-159.00 range gives way on the charts

The 157.00-159.00 range had contained USD/JPY since late September before Wednesday's advance took it higher. The pair has retraced about three-fifths of its decline from the late-July peak to the September trough near 153.00. Thursday's narrow trading bar has a low slightly below 159.50, while the opening and latest prices are almost the same.

USD/JPY: daily price chart

Japanese Yen: key questions answered

Japanese Yen: the main currency drivers

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

Bank of Japan decisions: implications for the Yen

Currency control forms part of the Bank of Japan's mandate, making its actions important for the Yen. Direct intervention in currency markets has occasionally been used by the BoJ, usually to weaken the Yen. It avoids frequent intervention, however, because of political concerns among Japan's main trading partners. Between 2013 and 2024, its ultra-loose monetary policy widened the policy gap with other major central banks, weakening the Yen against its principal currency peers. The gradual withdrawal of that policy has more recently provided the Yen with some support.

Japan-US bond yield gap: consequences for the Yen

Over the past decade, continued ultra-loose policy at the BoJ increased its policy divergence from other central banks, notably the US Federal Reserve. As a result, the yield gap between 10-year US and Japanese bonds widened, supporting the US Dollar against the Japanese Yen. That gap is now narrowing as the BoJ gradually moves away from ultra-loose policy following its 2024 decision, while other major central banks cut interest rates.

Risk sentiment: the Yen's safe-haven role

Investors often regard the Japanese Yen as a safe-haven asset. During periods of market stress, its perceived reliability and stability make investors more likely to shift funds into the currency. Consequently, market turbulence is likely to lift the Yen against currencies viewed as riskier investments.