Japanese Yen edges higher above 153.00 on Takaichi’s economic outlook

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The USD/JPY pair loses ground to near 153.25 during the early Asian session on Wednesday.

USD/JPY softens to around 153.25 in Wednesday’s early Asian session.
Optimism about the economic policies of Takaichi underpins the Japanese Yen.
The US growth outlook and midterm elections will ease downward pressure on the US Dollar.

The USD/JPY pair loses ground to near 153.25 during the early Asian session on Wednesday. Growing optimism around Japanese Prime Minister Sanae Takaichi’s pro-stimulus policy agenda and expectations that the Bank of Japan (BoJ) could raise interest rates in the coming months support the Japanese Yen (JPY) against the Greenback. Minutes of the Federal Open Market Committee (FOMC) will be in the spotlight later in the day.

Takaichi and BoJ Governor Kazuo Ueda emphasized the importance of close coordination to achieve demand-driven sustainable growth while avoiding sharp volatility in the foreign exchange (FX) market.

Takaichi presented details of her “smart stimulus” fiscal plan, explaining that it is based on disciplined calculations and is not aimed at driving uncontrolled inflation, but rather at strengthening economic growth. Her remarks ease some concerns about public debt sustainability, which lifts the JPY and creates a headwind for the pair.

On the other hand, improvement in US growth prospects, business confidence and expectations that US President Donald Trump will be less aggressive heading into the midterm elections this year might cap the downside for the USD.

“A more growth‑focused and less politically volatile Trump administration ahead of the midterms will be added support,” said Dan Tobon, head of G10 FX strategy at Citi in New York. "We think animal spirits will be coming back a bit. All of these things in conjunction, in our view, should actually be quite positive for the dollar."

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.