USD/JPY attracts some sellers below 156.50 as Yen strengthens on intervention fears

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USD/JPY slumps to near 156.30 in Wednesday’s early Asian session.
The US economy grew at a 4.3% annualized pace in Q3, stronger than expected.
Intervention fears support the Japanese Yen, but uncertainty about the future BoJ interest rate path might cap its gains.

The USD/JPY pair tumbles to around 156.30 during the early Asian session on Wednesday. The US Dollar (USD) weakens against the Japanese Yen (JPY) despite the stronger-than-expected US Gross Domestic Product (GDP) report for the third quarter (Q3). Financial markets are likely to trade in a subdued mood ahead of the Christmas holiday. The US weekly Initial Jobless Claims are due later on Wednesday.

Data released by the Bureau of Economic Analysis on Tuesday, showing strong growth in the world's largest economy, failed to shift sentiment from expectations of Federal Reserve (Fed) interest rate cuts next year. The US economy expanded at a 4.3% annualized pace in Q3. This figure was higher than the 3.3% expected and followed a 3.8% growth in Q2. The Greenback remains weak against the JPY in an immediate reaction to the upbeat GDP data.

Additionally, verbal intervention from Japanese officials could provide some support to the Japanese Yen and create a headwind for the pair. Japan’s Finance Minister Satsuki Katayama said on Tuesday that the official has a free hand in dealing with excessive moves in the JPY. Earlier on Monday, Japan’s top foreign exchange (FX) official, Atsushi Mimura, stated that recent foreign exchange moves were one-sided and sharp. Mimura added that he is concerned about the FX move and that the government will take appropriate action against excessive actions.

Despite the Bank of Japan’s (BoJ) recent rate hike, the Japanese central bank has refrained from providing explicit forward guidance regarding the timing of future movements. BoJ Governor Kazuo Ueda said during the press conference that Japan's economy is recovering moderately, albeit with some weakness.

Ueda further stated that the central bank will closely monitor the impact of the latest rate change, and the pace of monetary adjustment will depend on the economic, price, and financial outlook. The uncertainty surrounding the future BoJ interest rate path could undermine the JPY against the USD.

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.