Japanese Yen holds steady as BoJ and Fed rate decisions in focus

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The USD/JPY pair trades on a flat note near 159.50 during the early Asian session on Monday. Traders prefer to wait on the sidelines ahead of the key interest rate decisions from both the Bank of Japan (BoJ) and the US Federal Reserve (Fed).

USD/JPY flat lines around 159.50 in Monday’s early Asian session.
Markets expect the BoJ to leave interest rates unchanged on Tuesday.
The FOMC is anticipated to maintain the federal funds rate between 3.50% and 3.75% at its April meeting on Wednesday.

Markets anticipate the Japanese central bank keeping interest rates steady at 0.75% on Tuesday. While a "hawkish hold" is possible, officials are balancing rising energy-driven inflation against economic uncertainty caused by ongoing conflicts in the Middle East.

Meanwhile, intervention fears could provide some support to the JPY and act as a headwind for the pair. Japanese authorities, including Finance Minister Satsuki Katayama, highlighted a "high sense of urgency" regarding speculative and weak-JPY moves driven by Middle East tensions.

The Federal Open Market Committee (FOMC) is expected to maintain the benchmark federal funds rate in the 3.50% to 3.75% range, marking the third consecutive meeting without a change. This meeting may be the final one for Jerome Powell, whose successor, Kevin Warsh, is nearing confirmation.

Traders will take more cues from the press conference on how policymakers are interpreting the impact of higher energy costs and whether this alters their longer-term outlook on interest rates. Any hawkish remarks from the Federal Reserve (Fed) policymakers could lift the Greenback against the Japanese Yen (JPY).

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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