EUR/JPY recovery fails at 183.65 despite easing intervention fears

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The Euro nudged up from six-week lows, right below 182.00 against the Yen on Tuesday, as convictions about a BoJ-Fed intervention start to fade, but met resistance at the 183.65 area before pulling back to levels right below 183.00 at the time of writing.

EUR/JPY found sellers at 183.65 before retreating below 183.00 on Tuesday's European session.
The Yen is trimming some gains on Tuesday, as fears of an intervention start to fade.
Concerns about Japan's fiscal stability remain a major headwind for the Yen.

The Japanese Yen is trimming recent gains against most peers, although it remains well above last week's lows. The line on the sand for the market is the 160.00 level, and, in that sense, the current prices have calmed market fears of an imminent intervention, while concerns about Japan’s fiscal stability returned to the table.

Investors sold the Yen across the board last week, after Prime Minister Sanae Takaichi dissolved the lower house and called snap elections on February 8. The market is fearing that her growing popularity will give her stronger parliamentary support to pursue her policies of big spending and lower taxes, adding pressure to the country’s already strained finances.

News that the Fed and the BoJ requested USD/JPY rates by major banks on Friday, a precedent of an intervention, put investors on their heels and sent the Yen soaring across the board.

In Europe, German IFO Business Climate data disappointed on Monday. On Tuesday, ECB President Christine Lagarde will take the stage, but she is unlikely to say anything new on monetary policy.

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.