USD/JPY extends losses nearing 158.00 amid intervention warnings

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The Japanese Yen drops 0.3% on Friday’s European session, trading right above 158.10 at the time of writing. The pair has pulled back from the 159.45 highs seen earlier this week as Japanese authorities escalated their intervention warnings.

USD/JPY retreats to levels near 158.00, down from 159.45 weekly highs.
Japanese Finance Minister Katayama has flagged a joint intervention with the US.
US employment and manufacturing data boosted the Greenback on Thursday.

Japan’s Finance Minister, Satsuki Katayama, has flagged the option of a joint intervention with the United States to stem the recent Yen weakness in her boldest threat so far.

Katayama affirmed that she does not “rule out any options” to defend the Japanese currency, at a press conference on Friday, and recalled that the joint statement signed with the US in September was “extremely significant and included language on intervention”.

The Yen plunged to 18-month lows on Tuesday, following a local newspaper report suggesting that Prime Minister Takaichi was considering calling a snap election in February. Investors sold the Yen across the board on concerns that she would gain stronger parliamentary support to carry on her big-spending agenda, increasing pressure on an already strained fiscal deficit.

The US Dollar, on the other hand, has been supported by recent US economic figures. Jobless claims fell to their lowest levels since november and manufacturing figures beat expectations, endorsing the Federal Reserve’s (Fed) hawkish party. A January rate cut is practically discarded, and chances of any monetary easing in March have dropped to 20% from nearly 40% ione week ago, according to the CME’s Fedwatch Tool.

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.