Japanese Yen drops nearly 1% after PM Takaichi raises rate hike concerns

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USD/JPY rises nearly 1%, trading around 156.20 during the European hours on Tuesday.

Japanese Yen tumbles after Mainichi Shimbun reported PM Sanae Takaichi questioned further BoJ rate hikes.
Japan’s Finance Minister Satsuki Katayama said Japan will review the US Supreme Court’s tariff ruling details.
Trump’s administration eyes new security tariffs after a Supreme Court ruling voided several levies.

USD/JPY rises nearly 1%, trading around 156.20 during the European hours on Tuesday. The pair climbs as the Japanese Yen (JPY) weakens sharply after the Mainichi Shimbun reported that Japanese Prime Minister (PM) Sanae Takaichi expressed concerns about further interest rate hikes during her February 16 meeting with the Bank of Japan (BoJ) Governor Kazuo Ueda.

According to the report, Takaichi’s opposition to additional near-term tightening could complicate the BoJ’s policy timeline, as coordination with the strengthened administration becomes more sensitive. In contrast, Ueda stated that the discussion broadly covered economic and financial developments, adding that the Prime Minister made no specific monetary policy requests.

Meanwhile, Japan’s Finance Minister Satsuki Katayama said Tuesday that the government will carefully review details of the US Supreme Court’s tariff ruling. She added that Japan will steadily implement its US-bound investment package, while noting that US tariffs on automobiles remain in place.

The USD/JPY pair also appreciates as the US Dollar (USD) rebounds from losses recorded over the previous two sessions. However, the Greenback’s upside could be restrained as foreign investors shy away from US assets amid escalating trade uncertainty. Traders will focus on the US ADP Employment Change four-week average later in the day, along with speeches from Federal Reserve officials.

The Wall Street Journal reported US President Donald Trump’s administration is considering fresh national security tariffs on multiple industries after a Supreme Court ruling invalidated several of his second-term levies. The proposed measures would be implemented under Section 232 of the Trade Expansion Act of 1962 and remain separate from the 15% global tariff announced on Saturday.

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.