USD/JPY slumps below 151.00 amid ongoing US-China trade tensions

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USD/JPY faces some selling pressure near 150.85 in Thursday’s early Asian session.
Trump said the US is in a trade war with China; Bessent floated a long truce.
Political uncertainty in Japan might cap the JPY’s upside.

The USD/JPY pair tumbles to around 150.85 during the early Asian session on Thursday. The US Dollar (USD) weakens against the Japanese Yen (JPY) due to the continuing trade tensions between the US and China. The Federal Reserve (Fed) officials are set to speak later on Thursday, including Michael Barr, Stephen Miran, Christopher Waller and Michelle Bowman.

US President Donald Trump said on Wednesday that he saw the US is in a trade war with China, even as Treasury Secretary Scott Bessent proposed a longer pause on high tariffs on Chinese goods to resolve a conflict over critical minerals. Concerns over escalating trade tensions between the world’s two largest economies could boost the safe-haven currencies like the JPY and act as a headwind for the pair.

Traders assess comments from Fed Chair Jerome Powell for more cues on upcoming rate cuts amid a US government shutdown, which has hampered the timely release of key data. On Tuesday, Powell left the door open to rate cuts by saying the US labor market remained mired in low-hiring, low-firing doldrums. He said the absence of official economic data due to the government shutdown has not prevented policymakers from being able to assess the economic outlook, at least for now.

On the other hand, the growing speculation that the political uncertainty in Japan could put pressure on the Bank of Japan (BoJ) to delay interest rate hikes further could weigh on the JPY. The Liberal Democratic Party (LDP)–Komeito coalition came to an abrupt end last week. The development means the newly elected LDP leader, Sanae Takaichi, would need support from other parties to confirm her as Japan’s first female Prime Minister and for her key policies.

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.