USD/JPY weakens below 147.50 amid unabated concerns over Fed’s independence

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USD/JPY softens to around 147.20 in Thursday’s early Asian session.
Trump's effort to fire the Fed Governor weighs on the US Dollar.
Ueda’s remarks signaled that conditions for another interest rate hike were falling into place.

The USD/JPY pair loses ground to near 147.20 during the early Asian session on Thursday. The US Dollar (USD) weakens against the Japanese Yen (JPY) as worries persist over the Federal Reserve’s (Fed) independence. Traders brace for the second estimate of US Q2 Gross Domestic Product (GDP) Growth Rate, followed by the weekly Initial Jobless Claims and Pending Home Sales reports.

The Greenback remains on the defensive due to US President Donald Trump's attempt on Monday to fire Fed Governor Lisa Cook. On Tuesday, Trump said that he will soon have a “majority” of his own nominees on the Fed board of governors who will back his desire to cut the interest rates. In response, Fed Governor Lisa Cook said Trump has no authority to fire her from the central bank, and she will not resign.

Trump’s action to fire Cook is seen as an effort to exert control over the Fed and potentially influence monetary policy, raising concerns over the central bank’s independence. Money markets are now pricing in nearly an 87.2% odds of a 25 basis points (bps) rate cut in September, according to the CME's FedWatch tool.

The second estimate of US Q2 GDP will be in the spotlight later on Thursday. The US economy is expected to grow at an annual rate of 3.1% in Q2. If the report shows a stronger-than-expected outcome, this could boost the Greenback in the near term.

On the other hand, recent comments from the Bank of Japan (BoJ) Governor Kazuo Ueda provide some support to the Japanese Yen. Ueda said that wage hikes are spreading beyond large firms and are likely to keep accelerating due to a tightening job market. His remarks boost market hopes of a further interest rate hike in the coming months.

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.