Japanese Yen bounces up from lows after Japan PM Takaichi’s intervention warnings

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USD/JPY retreats from the key 160.00 level and hits session lows at 159.55.
Japan's Prime Minister Takaichi pledged "appropriate measures" in FX markets to support the Yen.
Previously, Finance Minister Katayama had warned that Japanese authorities are ready to step in.

The Japanese Yen (JPY) bounced up from five-week lows against the US Dollar (USD) on Wednesday, turning positive on the daily chart, as Japan’s Prime Minister Sanae Takaichi warned that Tokyo is ready to take action against Yen weakness. The USD/JPY pair has pulled back from the 160.00 level, considered a line in the sand for Japanese authorities, to hit session lows at 159.55.

Prime Minister Takaichi affirmed that FX policy is important to support the Japanese economy and reiterated that Tokyo is ready to “take appropriate steps on FX as needed at any time,” comments similar to those that preceded an intervention on April 30.

Takaichi also said that transactions not based on real demand, including speculative moves, are increasing in the forex markets and pledged to deepen international cooperation, including with the US, to avoid unwanted Yen weakness.

Earlier on Wednesday, Finance Minister Satsuki Katayama pledged that Japanese authorities will “respond appropriately at any time as necessary” and added that BoJ Governor Kazuo Ueda, who is due to speak later on the day, is likely to show a positive stance towards a rate hike.

The USD/JPY pair fell about 400 pips on April 30 amid an alleged intervention, but it has gradually retraced losses ever since, returning to the key 160.00 level. Investors’ concerns about the negative impact of the energy shock in Japan’s Oil-importing economy, coupled with the comparatively low Japanese Government Bond (JGB) yields and an uncertain Bank of Japan (BoJ) tightening pace, remain a heavy weight for the JPY.

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.