USD/JPY is looking for direction around 153.00 with key US data in focus

Yen recovery falters amid weak Japanese data

The Yen retreated from recent highs on Monday following disappointing preliminary Japanese Gross Domestic Product (GDP) figures for Q4. Data released by the Cabinet’s Office revealed that the economy grew at a meagre 0.1% rate in the last three months of the year, following a 0.7% contraction in Q3, and falling short of the 0.4% market consensus. Year-on-year, the Japanese economy expanded 0.2%, well below the 1.6% growth rate expected.

The Yen depreciated across the board following the GDP release. The pair, however, failed to breach the top of the last few days' trading range, at the mentioned 153.70. Investors are looking from the sidelines at the start of the week, awaiting the release of key US economic data later this week before making trading decisions.

On Tuesday, the main attraction in the US session will be the New York Empire State Manufacturing Index. The market, however, will remain focused on the minutes of the Federal Reserve’s (Fed) latest meeting, due on Wednesday, which will frame the preliminary Q4 Gross Domestic Product (GDP) data and the Personal Consumption Expenditures (PCE) Price Index, which will be disclosed next Friday.

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.