USD/JPY approaches the key 160.00 level with BoJ intervention looming

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The US Dollar (USD) is outperforming its peers on Friday, including the safe-haven Yen (JPY).

USD/JPY extends gains for the fourth consecutive day, nearing the key 160.00 level.
Former BoJ Governor Kuroda has reiterated his calls for higher interest rates.
Japanese Finance Minister Katayama has flagged the possibility of an intervention.

The US Dollar (USD) is outperforming its peers on Friday, including the safe-haven Yen (JPY). The USD/JPY is trading right below the key 160.00 level, which has been considered a line in the sand for a BoJ intervention, as calls for further Bank of Japan (BoJ) rate hikes by former Governor Haruhiko Kuroda have passed practically unnoticed.

Kuroda affirmed in an interview with the Asahi newspaper that the central bank should continue raising borrowing costs, and that the Iran war only provides further reasons to accelerate monetary policy normalization. Regarding the April monetary policy meeting, the former BoJ chief said that the bank “would raise the policy rate in April if you think about it normally.”

The pair has rallied nearly 1% over the last four days as the pressure on the Japanese economy stemming from higher oil prices has reactivated concerns about Japan’s fiscal stability, offsetting the traditional safe-haven status of the Japanese Yen

Earlier on Friday, Japanese Finance Minister Satsuki Katayama warned of “bold actions” to counter currency moves if USD/JPY approached 160.00, a level which allegedly prompted Japanese authorities to step in several times in 2024.

The US Dollar, on the other hand, maintains its overall bullish tone intact, as investors position for a protracted war in the Middle East. US President Donald Trump provided a glitch of hope on Thursday, extending the deadline to attack Iran’s energy sites, but a news report by the Wall Street Journal, suggesting that the Pentagon might send 10.000 aditional troops for a ground invasion, has dampened the weak expectations of a swift end to the war.

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.