Japanese Yen remains subdued despite hawkish tone surrounding BoJ’s policy outlook
Oleh Akhtar Faruqui
Diperbarui: 13 May 2026
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USD/JPY extends its gains for the third successive day, trading around 157.70 during the Asian hours on Wednesday.
- USD/JPY rises as the Japanese Yen weakened following the release of Japan’s current account surplus data.
- The OECD projects the Bank of Japan will increase short-term policy rates to 2% by the end of 2027.
- Hotter US inflation data suggests the Federal Reserve may maintain high interest rates to combat persistent price increases.
USD/JPY extends its gains for the third successive day, trading around 157.70 during the Asian hours on Wednesday. The pair appreciates as the Japanese Yen (JPY) remains subdued after the release of Japan’s current account surplus, which increased to JPY 4,681.5 billion in March from JPY 3,625.3 billion in the same month a year earlier. These figures surpassed market expectations of JPY 3,879 billion, marking the largest amount on record.
The Bank of Japan’s April Summary of Opinions revealed that policymakers are considering further rate hikes as early as their next meeting, driven largely by inflation risks linked to rising oil prices.
The Organisation for Economic Co-operation and Development (OECD) has recommended that Japan primarily utilize consumption tax increases to bolster its national revenue. On the monetary front, the Bank of Japan (BOJ) is projected to raise short-term policy rates to 2% by the end of 2027, though it must remain flexible enough to modify the pace and maturity of its bond-buying activities should financial or bond market disruptions occur. Furthermore, the OECD advised stricter fiscal discipline, suggesting that the government limit the use of supplementary budgets to instances of significant economic shocks.
The USD/JPY pair advances as the US Dollar (USD) gains ground on the volatile geopolitical climate in the Middle East following recent comments from US President Donald Trump. While claiming that Iran is "under control," the President warned of a binary outcome: a new deal or total "decimation." In response, Iranian Deputy Foreign Minister Kazem Gharibabadi maintained a firm stance, asserting that any viable peace agreement must include reparations, recognized sovereignty over the Strait of Hormuz, and a complete end to US sanctions.
Moreover, the Greenback may receive support as hotter-than-expected US Consumer Price Index (CPI) has reinforced a hawkish sentiment among investors, signaling that the Federal Reserve (Fed) is likely to maintain elevated interest rates to combat persistent inflationary pressures.
The Bureau of Labor Statistics reported on Tuesday that April CPI rose 0.6% month-over-month, pushing the annual inflation rate to 3.8%, its highest level since May 2023. Core CPI, which strips out volatile food and energy costs, also trended upward with a 2.8% annual rise.
Japanese Yen FAQs
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.
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.
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.
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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