Japanese Yen edges higher on intervention fears; USD/JPY eyes weekly low on weaker USD

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The USD/JPY pair struggles to capitalize on the previous day's modest gains and meets with a fresh supply during the Asian session on Thursday. Spot prices drop to the 158.70-158.65 region in the last hour and remain close to the weekly trough, touched on Tuesday amid a bearish US Dollar (USD).

USD/JPY attracts fresh sellers on Thursday and is pressured by a combination of factors.
Iran diplomacy hopes and fading hawkish Fed bets continue to undermine the US Dollar.
Intervention fears benefit the JPY, though Hormuz risks cap gains and support spot prices.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near its lowest level since early March amid hopes of a prolonged US-Iran ceasefire, which remains supportive of the upbeat market mood. In fact, US President Donald Trump suggested that the war with Iran is close to over. This comes amid optimism over continued US-Iran negotiations and undermines the USD's status as the global reserve currency, exerting some downward pressure on the USD/JPY pair.

Meanwhile, expectations for diplomatic efforts to end the conflict keep Crude Oil prices well within striking distance of a three-week low set on Tuesday. This helps ease inflation fears and tempers hawkish US Federal Reserve (Fed) expectations, which is seen as another factor weighing on the USD. The Japanese Yen (JPY), on the other hand, draws some support from speculations that authorities would step in to stem weakness in the domestic currency and contributes to the USD/JPY pair's decline.

However, economic concerns stemming from the instability in the Strait of Hormuz might cap any meaningful JPY appreciation. Japan depends mostly on energy imports from the Middle East, and the US Navy blockade, restricting shipping traffic in and out of Iran, threatens to further constrain already shuttered oil flows. This, in turn, fuels worries that Japan's economy will come under substantial strain in the near future, which could keep a lid on the JPY and offer some support to the USD/JPY pair.

Looking at the broader picture, spot prices have been oscillating in a familiar range over the past month or so. This further makes it prudent to wait for strong follow-through selling before traders start positioning for an extension of the recent pullback from the vicinity of mid-160.00s, or the highest since July 2025, touched last month. In the absence of a major market-moving US macro data, speeches from influential FOMC members might provide some impetus to the Greenback and the USD/JPY pair.

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.