USD/JPY holds positive ground above 154.00 as US Senate moves to end shutdown

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USD/JPY softens to around 154.10 in Wednesday’s early Asian session.
Signs that a resolution to the US government shutdown is nearing support the US Dollar.
ADP showed US private employers shed more jobs than they created in the four weeks ending October 25.

The USD/JPY pair trades in positive territory near 154.10 during the early Asian session on Wednesday. The US Dollar (USD) strengthens against the Japanese Yen (JPY) amid optimism over a potential deal to end the US government shutdown. Federal Reserve (Fed) officials are set to speak later on Wednesday, including John Williams, Anna Paulson, Christopher Waller, Raphael Bostic, Stephen Miran and Susan Collins.

Bloomberg reported late Tuesday that a record US government shutdown is on a path to end as soon as Wednesday after the Senate passed a temporary funding measure backed by a group of eight centrist Democrats. The spending package would keep most of the government open through January 30. The positive developments surrounding reopening the government could provide some support to the Greenback against the JPY in the near term.

Nonetheless, weaker-than-expected ADP employment data might cap the upside for the USD. Private employers shed an average of 11,250 jobs per week on average in the four weeks ended October 25, the Automatic Data Processing (ADP) showed on Tuesday. The report suggested the labor market slowed in the second half of October, compared with earlier in the month.

Expectations that Japanese authorities might intervene to stem further weakness in the domestic currency could underpin the JPY and create a headwind for the pair. Japan's Finance Minister Satsuki Katayama last week issued a warning against the JPY's rapid and one-sided movements, saying that the government is monitoring the situation with the utmost urgency amid market concerns that currency intervention may occur.

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.