USD/JPY slides to two-week lows sub-146.50 on hawkish BoJ comments

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The US Dollar depreciates against the Japanese Yen for the third consecutive day on Tuesday, reaching two-week lows below 146.50 and approaching August’s trough, at 146.20.

The Japanese Yen appreciates against the US Dollar as BoJ officials confirm the Bank's tightening plans.
A Bloomberg report suggests that the BoJ might hike rates as early as October, regardless of the political context.
The USD remains on its back foot, with investors bracing for a sharp downward revision of US payrolls.
August’s

The US Dollar depreciates against the Japanese Yen for the third consecutive day on Tuesday, reaching two-week lows below 146.50 and approaching August’s trough, at 146.20. Comments from BoJ officials reiterating their commitment to a tighter monetary policy have provided additional support to the Yen.

A report by Bloomberg, citing BoJ officials on Tuesday, revealed that the bank sees lower risks for growth after the trade deal with the US and that some policymakers are in favour of hiking rates as early as October, regardless of the political instability.

The Yen shrugs off political uncertainty concerns

The JPY wobbled on Monday, as Prime Minister Ishiba announced his resignation on the back of the defeat at the summer elections and former Minister for Economic Security, Sanae Takaichi, emerged as a potential candidate. Takachi is known for her opposition to higher interest rates, and her designation as the next PM would put the bank’s tightening plans into question.

The US Dollar, on the other hand, is suffering from investors’ fears of a sharp cut in the recent job figures at the BLS’s Annual Nonfarm Payrolls benchmark revision due later today.

Market sources anticipate a further cut of about 800,000 jobs in the last 12 months to March. Such a reading would reflect a quickly deteriorating labour market and add pressure on the Fed to accelerate its easing cycle. Hopes of a 50 bps cut next week may surge, sending the US Dollar lower across the board.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.