USD/JPY gains near 152.50 as traders expect Takaichi to back accommodative policies

POPULAR ARTICLES

USD/JPY extends its gains for the fifth successive session, trading around 152.50 during the Asian hours on Thursday.

USD/JPY appreciates on expectations that PM Takaichi will pursue expansionary and accommodative policies.
Traders expect the BoJ to hold rates steady next week, with a possible hike in January.
President Trump expects to reach several agreements with Chinese President Xi Jinping.

USD/JPY extends its gains for the fifth successive session, trading around 152.50 during the Asian hours on Thursday. The pair appreciates as the Japanese Yen (JPY) weakens amid rising likelihood of the new Prime Minister Sanae Takaichi pursuing expansionary fiscal policies and supporting accommodative monetary policy. Meanwhile, the Bank of Japan (BoJ) is widely expected to hold rates steady next week, with markets now eyeing a possible hike in January.

Traders expected Prime Minister Takaichi to introduce a large-scale stimulus package as early as next month. Reports indicated the plan could exceed last year’s JPY 13.9 trillion initiative aimed at easing inflation pressures on households.

The USD/JPY pair also draws support on optimism surrounding the United States (US)-China trade deal. US President Donald Trump said late Wednesday that he expects to strike several agreements with Chinese President Xi Jinping during their meeting in South Korea next week. The Trump-Xi discussions are expected to cover a wide range of issues, including US soybean exports, limiting nuclear weapons, and China’s purchases of Russian Oil.

However, the upside of the pair could be restrained as the US Dollar (USD) may again struggle due to the prolonged US government shutdown, which delays key US economic data releases, including Nonfarm Payrolls (NFP), adding uncertainty for financial markets and the Federal Reserve (Fed). The CME FedWatch Tool indicates that markets are now pricing in nearly a 97% chance of a Fed rate cut in October and a 96% possibility of another reduction in December.

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.