Japan’s Top FX Diplomat Mimura: Recent Yen moves deviate from the fundamentals

Additional comments

There is some speculation in the market about Japan's macroeconomic policies, especially fiscal policy.

Yen long positions have been shrinking after the summer.

We all agree that monetary policy itself is in the hands of the Bank of Japan (BoJ).

I would say outcome of Japan’s trade deal with the US is the best thing that we could do realistically.

Don't think we need annual cap for US.-bound investment like South Korea, in light of Japan’s foreign currency market.

A bit worried whether or not the current situation in the stock market might be a little too rapid.

Investment in AI is good now, but many of these AI ecosystems may be eventually forced out of the market.

Market reaction

USD/JPY is holding its recovery near 153.00, flattish on the day at the time of writing.

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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