USD/JPY whipsaws around 154.00 with the US Dollar on the defensive

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The Yen extends gains for the third consecutive day against the US Dollar on Tuesday. The USD/JPY pair trades at 153.75 at the time of writing after the Greenback’s recovery attempts found sellers a few pips shy of the 155.00 level.

USD/JPY remains depressed below 154.00 after rejection at 154.85.
US trade uncertainty and growing risks of a government shutdown are weighing on the Dollar.
In Japan, concerns about fiscal stability are keeping the Yen from rallyinf further.

The US Dollar attempted to regain lost ground favoured by some risk appetite during the Asian and early European trading sessions on Tuesday, as investors’ fears about an immediate intervention eased, following a nearly 3.5% Yen rally from last week's lows.

With fears of a Yen intervention ebbing, concerns about Japan’s fiscal stability returned to the table. Markets are wary that the February 8 elections in Japan might give Prime Minister Sanae Takaichi stronger support to pursue her policy of big spending and low taxes, ultimately leading to a fiscal crisis.

Trade uncertainty keeps weighing on the USD

The US Dollar, however, has failed to take a significant distance from recent lows, weighed down by issues of its own. US President Trump launched a new tariff salvo, this time against South Korea, adding to evidence of an erratic trade policy that hammered the US Dollar in 2025.

Beyond that, Senate Democrats are considering blocking the funding of the Department of Homeland Security (DHS) in response to the killings in Minnesota, a move that would lead to a partial government shutdown on Saturday. This is adding weight to the US Dollar.

On the macroeconomic front, markets brushed off the upbeat US Durable Goods Orders data on Monday, as the focus turns to the outcome of the Federal Reserve’s (Fed) meeting, due on Wednesday. The bank is widely expected to leave its monetary policy unchanged, but President Trump might be tempted to take centre stage, announcing the name of Chairman Powell’s replacement, as his term ends in May.

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.