Japanese Yen edges higher on intervention fears; USD/JPY hangs near 159.50 on softer USD

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USD/JPY retreats from the vicinity of the YTD peak and is pressured by a combination of factors.
Intervention fears underpin the JPY, while Trump’s Iran strike delay prompts some USD selling.
The BoJ rate hike uncertainty and hawkish US Fed bets could limit losses for the currency pair.

The USD/JPY pair attracts some sellers during the Asian session on Friday, and for now, seems to have snapped a three-day winning streak back closer to its highest level since July 2024, touched earlier this month. Spot prices currently trade just above mid-159.00s, down 0.15% for the day, though the downside potential seems limited.

The Japanese Yen (JPY) approached the 160.00 threshold level against its American counterpart that authorities have previously used as a reference point for intervention or intervention threats. This, along with a modest US Dollar (USD) downtick, exerts some downward pressure on the USD/JPY pair. However, concerns that the war-driven surge in energy prices would weigh on Japan's trade balance and economic outlook might cap any meaningful JPY appreciation.

Furthermore, a sustained increase in Crude Oil prices would reignite inflationary pressures and create a classic stagflationary environment. This might complicate the Bank of Japan's (BoJ) normalization efforts as rate hikes would slow an economy already absorbing an energy shock, which, in turn, might keep a lid on the JPY. Adding to this, the aggressively repricing of Federal Reserve (Fed) rate expectations favors the USD bulls and should limit losses for the USD/JPY pair.

Despite US President Donald Trump's decision to delay strikes on Iran’s energy infrastructure and extend the deadline to reopen the Strait of Hormuz until April 6, market participants seem worried about a further escalation of tensions in the Middle East. This, in turn, remains supportive of elevated Crude Oil prices and continues to fuel inflation concerns, which might force major central banks, including the Fed, to adopt a more hawkish stance and consider raising interest rates.

The aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that the USD/JPY pair has topped out in the near-term and positioning for any meaningful corrective decline. Meanwhile, bullish traders might opt to wait for a sustained breakout through the 160.00 psychological mark before positioning for an extension of the recent well-established uptrend from the February monthly swing low, around the 152.30-152.25 region.

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.