160.80: Japanese Yen remains close to nearly two-year lows

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USD/JPY inches lower after four days of gains, trading around 160.60 during the Asian hours on Thursday.

USD/JPY hovers near 160.80, the highest level since July 2024 reached on Thursday.
Japan's Minoru Kihara warned that the government is ready to respond appropriately to volatile currency moves at any time.
US Dollar declined amid easing safe-haven demand following a preliminary US-Iran MoU to end the war.

USD/JPY inches lower after four days of gains, trading around 160.60 during the Asian hours on Thursday. The USD/JPY pair surged to 160.80 the previous day, marking its highest level since July 2024 and significantly heightening speculation that Japanese authorities could soon intervene to support the struggling Yen.

In response to the currency's rapid decline, Japanese Chief Cabinet Secretary Minoru Kihara stated during a Thursday press conference that the government remains "ready to respond appropriately to currency moves as needed at any time." Kihara emphasized that officials are closely monitoring market developments and comprehensively evaluating their economic impact.

Meanwhile, the USD/JPY pair surrendered some gains as the US Dollar weakened due to fading risk aversion. This shift followed a BBC report confirming that US President Donald Trump and Iranian President Masoud Pezeshkian have signed a preliminary memorandum of understanding aimed at ending the US-Israel war on Iran.

However, the Greenback's downside may be limited, with potential to rebound against major peers as odds rise for a Federal Reserve interest rate hike later this year. According to the Fed’s June Summary of Economic Projections, half of the FOMC members still expect at least one rate hike in 2026. Despite recent economic disruptions linked to the conflict in Iran, a resilient US labor market and persistent underlying inflation continue to fuel monetary tightening pressures.

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.