Japanese Yen drifts lower ahead of US CPI inflation data, US-Iran talks

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The USD/JPY pair attracts some buyers to near 159.30 during the early European trading hours on Friday. A fragile ceasefire between the US and Iran provides some support to the US Dollar (USD) against the Japanese Yen (JPY).

USD/JPY edges higher to around 159.30 in Friday’s early European session.
Traders will closely monitor the US CPI inflation report on Friday ahead of US-Iran talks.
Japan plans to release 20-days worth of oil stock from early May onwards.

Traders await the crucial US Consumer Price Inflation (CPI) report later on Friday, which could provide direction for the Federal Reserve's (Fed) higher-for-longer interest rate stance. Market consensus expects to see headline CPI inflation rise to 3.3% YoY in March from 2.4% in February, driven by soaring oil prices due to the Middle East war.

Meanwhile, the core CPI is projected to show a rise of 2.7% in March, versus 2.5% prior. Any signs of hotter inflation in the US could underpin the Greenback against the JPY in the near term.

US President Donald Trump said on Thursday that he expects Iran to comply with terms he says were agreed on for a ceasefire ahead of planned negotiations this weekend, warning that if it doesn't, he'll order large-scale attacks on the country.

The outcome of make-or-break talks between the US and Iran on Saturday in Pakistan will be closely watched. The US delegation will be led by US Vice President JD Vance, special envoy Steve Witkoff, and Jared Kushner.

Japanese Prime Minister Sanae Takaichi stated on Friday that the government is weighing a plan to release approximately 20 days' worth of additional oil reserves starting from early May onwards. This move aims to stabilize domestic energy supplies amid persistent shipping disruptions in the Strait of Hormuz.

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.