Japanese Yen moves little after reaching six-week lows

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USD/JPY remains flat after two days of gains, trading around 160.50 during the Asian hours. The pair moves little after reaching a six-week high of 160.56 during earlier hours on Thursday, which could be attributed to possible foreign-exchange intervention by Japanese authorities.

USD/JPY flatlines near a six-week high of 160.56 following suspected foreign-exchange intervention by Japanese authorities.
Finance Minister Satsuki Katayama stated the government is closely monitoring currency market movements to ensure economic stability.
The US Dollar may regain ground as escalating Middle East conflicts drive increased global demand for safe-haven assets.

Finance Minister Satsuki Katayama stated earlier this week that the government is keeping a close watch on currency market movements. She emphasized that Japan's stance remains unchanged regarding its preparedness to implement decisive steps when needed to ensure market stability.

The Bank of Japan (BoJ) is widely anticipated to hike interest rates next week as policymakers battle soaring energy costs driven by the Middle East conflict. Tensions escalated sharply after Iran's Islamic Revolutionary Guard Corps (IRGC) announced an immediate, total closure of the Strait of Hormuz, warning that any commercial or oil vessels attempting to transit the strait would be targeted.

The USD/JPY pair may further appreciate as the US Dollar (USD) may regain its ground amid rising safe-haven demand due to the ongoing Middle East conflict. Israeli military says that the Home Front Command, the branch of the Israel Defense Forces (IDF) responsible for civil defense, issues an early warning after launches from Lebanon toward northern Israel.

US Central Command (CENTCOM) confirmed that the US began airstrikes in Iran on Wednesday. Furthermore, President Donald Trump warned of severe military action if an interim peace deal is not finalized, accusing Tehran of stalling. Iranian officials, however, maintain they will not back down.

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.