USD/JPY steadies near 154.00 due to uncertainty over BoJ rate hike path

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USD/JPY holds gains near an eight-month high of 154.49, which was recorded on November 4, trading around 153.90 during the Asian hours on Monday. The pair appreciates as the Japanese Yen (JPY) struggles amid the uncertain Bank of Japan (BoJ) policy outlook.

USD/JPY maintains its position near an eight-month high of 154.49.
BoJ’s Nakagawa said the central bank will proceed cautiously with policy decisions.
US Dollar may find support as Senate moves forward with government funding bill to end shutdown.

BoJ board member Junko Nakagawa said Monday that the central bank will make policy decisions carefully, considering the continued uncertainty surrounding global trade policies. Nakagawa noted that Japanese corporate profits may weaken due to tariff effects but are expected to recover as overseas economies rebound and domestic consumption rises on stronger real wages. She added that medium- to long-term inflation expectations are gradually moving toward the BoJ’s 2% target.

The BoJ’s Summary of Opinions from the October monetary policy meeting indicated that the uncertainty remains over the central bank’s outlook, but Japan will see the environment fall into place to adjust the policy rate depending on the economic, price outlook. The BoJ could consider adjusting its policy if global economic and market conditions remain stable and the central bank confirms that firms will continue their active wage-setting behavior.

The US Dollar (USD) could receive support as the US Senate advances a government funding bill to end the shutdown, moving it closer toward passage by voting 60-40 in first approval on extending the enhanced Affordable Care Act subsidies. The amended proposal would still have to be passed by the House of Representatives and sent to President Donald Trump for his signature, a process that could take several days, according to Reuters.

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.