Japanese Yen edges higher on intervention risk, renewed Iran

Japanese Yen edges higher on intervention risk, renewed Iran–US tensions

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USD/JPY softens to around 159.20 in Wednesday’s early Asian session.
Potential of further intervention from Japanese officials might underpin the Japanese Yen.
Iran threatened to retaliate after the US strikes on launch sites and boats.

The USD/JPY pair loses ground to near 159.20 during the early Asian trading hours on Wednesday. Speculations that Japanese authorities will step in again to prop up the currency provide some support to the Japanese Yen (JPY) against the US Dollar (USD).
The US April Personal Consumption Expenditures (PCE) Price Index report will be in the spotlight later on Thursday.

Traders remain on high alert for further currency interventions as top FX diplomat Atsushi Mimura warned that speculative short positions will continue to be heavily monitored. Finance Minister Satsuki Katayama said that Japan stands ready to act against excessive foreign exchange volatility at any time, while ensuring that any intervention is conducted in a way ‌that avoids pushing up US Treasury yields.

Bank of Japan (BoJ) Governor Kazuo Ueda said on Wednesday that the current Middle East conflict represents Japan's fifth major oil shock, warning that initial conditions, including wages, expectations, and exchange rates, will determine whether it proves temporary or persistent.

On Tuesday, the United States (US) launched defensive attacks on boats and missile sites in Iran, raising fears of renewed tensions in the Middle East. Iran’s Revolutionary Guard Corps (IRGC) stated that it reserved the “legitimate and definite” right to retaliate against any ceasefire violations by the US.

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.