Japanese Yen rises above 153.00 on fiscal optimism, traders await US NFP release

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USD/JPY falls to around 153.15 in Wednesday’s early European session.
Traders bet Japan PM Takaichi could be more fiscally responsible.
US NFP is expected to rise by 70K in January.

The USD/JPY pair tumbles to near 153.15 during the early European trading hours on Wednesday. Traders pour into Japanese stocks in anticipation of stimulus flowing to consumers and Japanese companies, boosting demand for the Japanese Yen (JPY). All eyes will be on the US January jobs data later on Wednesday, which might offer clues on the path of Federal Reserve (Fed) policy.

Japan's benchmark Nikkei 225 stock average reached its all-time closing high for the third straight day on Wednesday, as buying momentum continued after Sunday's general election. Foreign inflows into Japanese equities increase demand for the JPY and create a headwind for the pair.

"Such a sweeping victory hands the Takaichi regime better control over the JGB-bearish and the yen-bearish aspects of the so-called Takaichi trade," said Vishnu Varathan, Mizuho's head of macro research for Asia ex-Japan. Additionally, Deutsche Bank analysts believe that there are positive signals that more market-friendly policies may be on the horizon.

Traders will keep an eye on the US jobs report, which was pushed back slightly due to the recently ended four-day government shutdown. Traders expect Nonfarm Payrolls (NFP) to rise by 70K following the 50K increase seen in December. Meanwhile, the Unemployment Rate is projected to remain unchanged at 4.4%, while the Average Hourly Earnings are estimated to soften to 3.6% from 3.8%. In case of stronger-than-expected US economic data, this could provide some support to the Greenback against the JPY.

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.