USD/JPY consolidates as intervention risks weigh against strong US data

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The Japanese Yen (JPY) treads water against the US Dollar (USD) on Thursday, as USD/JPY lacks strong follow-through buying amid lingering intervention risks tied to excessive Yen weakness.

USD/JPY holds near multi-month highs as intervention risks temper follow-through buying.
Upbeat US data reinforce the view that the Fed can remain patient on easing.
Political uncertainty in Japan weighs on the Yen as snap election risks keep sentiment cautious.

The Japanese Yen (JPY) treads water against the US Dollar (USD) on Thursday, as USD/JPY lacks strong follow-through buying amid lingering intervention risks tied to excessive Yen weakness.

At the time of writing, the pair trades around 158.50, little changed on the day, remaining near its highest level since July 2024.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.41, its highest level since December 3, as stronger-than-expected US economic data reinforced the view that the Federal Reserve (Fed) can remain patient on further policy easing, even as markets continue to price in two rate cuts this year.

Data released by the US Department of Labor showed that Weekly Initial Jobless Claims fell to 198,000 in the week ended January 10, undershooting market expectations of 215,000. The previous week’s figure was revised lower to 207,000 from 208,000.

Meanwhile, the four-week moving average of Initial Claims fell to 205,000 from a downwardly revised 211,500.

Regional manufacturing data also improved, with the Empire State index rising into positive territory at 7.7 from -3.7, while the Philadelphia Fed survey climbed to 12.6 from -8.8.

Further support came from cautious remarks by Fed officials. Chicago Fed President Austan Goolsbee said he still expects the Fed to cut interest rates this year but stressed that incoming data are needed to affirm that outlook, adding that rates "can still go down a fair amount" only if there is firm evidence inflation is retreating.

Separately, Atlanta Fed President Raphael Bostic said the Fed needs to keep policy restrictive because inflation remains too high, adding that price pressures could persist through 2026 even as he expects growth to stay above 2%.

In Japan, political uncertainty continues to weigh on sentiment after reports that Prime Minister Sanae Takaichi plans to dissolve parliament next week and call a snap parliamentary election.

At the same time, markets remain wary that sustained Yen weakness could complicate the Bank of Japan’s (BoJ) monetary policy path as the central bank proceeds cautiously with policy normalization.

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.