Japanese Yen strengthens on renewed verbal intervention

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USD/JPY extends its losses for the fourth successive session, trading around 152.90 during the Asian hours on Thursday. The pair weakens as the Japanese Yen (JPY) strengthens following renewed verbal intervention from Tokyo.

USD/JPY weakens as the Japanese Yen strengthens after renewed intervention warnings from Tokyo.
Japan’s top FX official, Atsushi Mimura, said authorities are closely monitoring markets amid renewed Yen volatility.
The US Dollar holds ground as Fed caution increases after stronger-than-expected jobs data.

Japan’s Vice Finance Minister for International Affairs and top FX official, Atsushi Mimura, said authorities are monitoring market moves “with a high sense of urgency” and remain vigilant amid renewed JPY volatility. Additionally, Finance Minister Satsuki Katayama reiterated that the government would respond to currency movements in line with the US-Japan joint statement.

The JPY also draws support from optimism that Japanese Prime Minister Sanae Takaichi’s expansionary fiscal agenda will lift domestic growth. Analysts see signs of greater fiscal discipline and a more market-friendly approach ahead, prompting investors to increase exposure to Japanese equities on expectations of stimulus benefiting households and corporations.

The downside of the USD/JPY pair could be restrained as the US Dollar (USD) strengthens on the rising likelihood of the Federal Reserve (Fed) caution on policy outlook following stronger-than-expected US jobs data released on Wednesday. The US Consumer Price Index (CPI) inflation report will be the highlight later on Friday.

US Nonfarm Payrolls climbed by 130,000 in January, following a revised 48,000 increase in December (previously 50,000), exceeding market expectations of 70,000. Meanwhile, the Unemployment Rate fell to 4.3% from 4.4%.

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.