Japanese Yen gathers strength amid intervention fears

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USD/JPY weakens to near 160.25 in Thursday’s Asian session.
Japanese authorities are on high alert for currency intervention as the Japanese Yen hovers near the key level.
The Fed held interest rates steady at 3.5% to 3.75% following its April policy meeting.

The USD/JPY pair loses traction to around 160.25 during the Asian trading hours on Thursday. The Japanese Yen (JPY) edges higher against the US Dollar (USD) amid intervention fears from Japanese authorities. Traders await the preliminary reading of the US Gross Domestic Product Price Index (GDP) for the first quarter (Q1) and the Personal Consumption Expenditures (PCE) Price Index inflation report for March, which are due later on Thursday.

The Bank of Japan (BoJ) decided to leave interest rates unchanged at 0.75% on Tuesday, as widely expected. Governor Kazuo Ueda signaled readiness to raise rates to fight broader inflation, but the JPY barely moved.

"I don't expect the situation of negative real interest rates to change," said Sho Suzuki, market analyst at Matsui Securities in Tokyo. "So I believe there is a high likelihood that the yen will remain weak," he added.

While no formal intervention has been confirmed this week, Japanese officials are on high alert for currency intervention as the Japanese Yen hovers near the critical level. Japanese Finance Minister Satsuki Katayama highlighted a "high sense of urgency" regarding speculative and weak-JPY moves driven by Middle East tensions.

On the USD’s front, the US Federal Reserve (Fed) on Wednesday held the interest rates in a range of 3.5% to 3.75% at its April meeting. That marked the first time four FOMC members dissented since October 1992. The committee noted that "inflation is elevated, in part reflecting the recent increase in global energy prices.”

During a press conference, Fed Chair Jerome Powell said that he will continue to serve as a Fed governor for an indefinite period even after his chairmanship ends. Kevin Warsh, Trump’s nominated successor, appears on track to take over for Powell at the central bank.

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.