USD/JPY rises to two-week highs near 157.00 on robust US jobs data, Fed rate decision in focus

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The USD/JPY pair climbs to two-week highs near 156.90 during the early Asian session on Wednesday. The stronger US jobs data provide some support to the US Dollar (USD) against the Japanese Yen (JPY). All eyes will be on the US Federal Reserve (Fed) interest rate decision later on Wednesday.

USD/JPY attracts some buyers to around 156.90 in Wednesday’s early Asian session.
Firm US jobs data and hawkish Fed rate cut expectations support the US Dollar.
Traders continue to assess the potential impact of a strong earthquake in Japan.

The US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday that the number of job openings on the last business day of September was 7.658 million, while for October it rose to 7.67 million. Both readings came in stronger than the market expectations and underscored a still resilient labor market. This, in turn, lifts the Greenback against the Japanese Yen (JPY).

Furthermore, the US central bank is widely expected to deliver a 25 basis points (bps) interest rate cut at its December meeting on Wednesday. This move would bring the federal funds rate down to a target range of 3.50% to 3.75%. Traders will closely monitor the press conference and a Summary of Economic Projections, or ‘dot-plot,’ for fresh impetus.

Fed Chair Jerome Powell's press conference will likely suggest a higher bar for future rate cuts, possibly hinting at a pause after this move. The ‘hawkish cut’ signal from the Fed could underpin the USD across the board in the near term.

News of the earthquake in Japan have exerted some selling pressure on the Japanese Yen and created a tailwind for the pair. Traders continue to assess the potential impact of a strong earthquake in Japan. Analysts said that depending on the extent of the earthquake's damage, the Bank of Japan (BoJ) could delay an expected rate hike next week. The upcoming BoJ monetary policy meeting is scheduled for December 18-19.

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.