Japanese Yen weakens below 157.50 on upbeat US data, BoJ's Ueda speech in focus

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The USD/JPY pair jumps to a near three-week high of 157.35 during the early Asian session on Tuesday. The US Dollar (USD) strengthens against the Japanese Yen (JPY) on the stronger-than-expected US economic data. Bank of Japan (BoJ) Governor Kazuo Ueda is set to speak later on Tuesday.

USD/JPY climbs to near 157.35 in Tuesday’s early Asian session.
US ISM Manufacturing PMI edged lower to 52.4 in February, stronger than expected.
Trump vowed to do “whatever it takes” in Iran, raising fears of a wider war in the Middle East.

Data released by the Institute for Supply Management (ISM) on Monday showed that the Manufacturing Purchasing Managers' Index (PMI) declined to 52.4 in February from 52.6 in January. This figure came in better than the market expectation of 51.8. The upbeat report complicates the path for US Federal Reserve (Fed) rate cuts. Markets currently price in a high probability of no change at the upcoming March meeting.

The US and Israel’s attacks on Iran have entered their third day, and US President Donald Trump said on Monday that the US military operation could continue for weeks or more. Fears of a wider war in the Middle East and persistent geopolitical risks could boost the safe-haven currencies such as the JPY in the near term.

Hawkish comments from Japanese officials could also underpin the JPY. BoJ Deputy Governor Ryozo Himino said on Monday that while the current policy remains "somewhat accommodative," the central bank should moderately hike rates as long as its economic and price projections are met.

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.