USD/JPY rises beyond the key 160.00 level, boosting intervention risks

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The US Dollar (USD) appreciates against the Japanese Yen (JPY) for the third consecutive day on Thursday, to hit 21-month highs at 160.73, levels that urged Japanese authorities to act in the past, since the 160.00 round mark is considered a line in the sand for Tokyo.

USD/JPY rallies to 21-month highs at 160.73 with Tokyo intervention looming.
The US Dollar rallies across the board, following the Fed's monetary policy decision.
Concerns about the impact of the energy shock on the Japanese economy keep weighing on the JPY.

The US Dollar is outperforming its major currency peers on Thursday, boosted by a hawkish tilt at Wednesday’s US Federal Reserve (Fed) monetary policy meeting and fears of a prolonged closure of the Strait of Hormuz, as attempts to find a negotiated end to the US-Iran war are failing.

The Fed held its monetary policy unchanged as expected on Wednesday, but three policymakers opposed the “easing bias” language in the bank’s statement, while another one dissented in favour of a rate cut. The overall outcome of the voting has prompted investors to price out any further rate cuts. US Treasury yields jumped in the aftermath of the meeting, providing additional support to the USD.

Japan’s Finance Minister, Satsuki Katayama, reiterated Tokyo’s willingness to take “decisive action” against excessive Yen weakness earlier this week, and the Bank of Japan (BoJ) assured that it will continue hiking rates as soon as geopolitical uncertainty ebbs.

The Yen, however, remains on its back foot, as concerns about the economic consequences of high Oil prices in a Crude-importing economy like Japan's are keeping investors away from 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.