Japanese Yen edges up but remains close to the 160.00 intervention threshold

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The Japanese Yen (JPY) edges up against the US Dollar (USD) on Friday, but the USD/JPY pair remains above 159.90 at the time of writing, unable to put a significant distance from the 160.00 level, considered the limit of tolerable JPY weakness for Japanese authorities.

USD/JPY trims gains on Friday, although it remains a few pips below the key 160.00 level.
The Yen remains vulnerable despite strong Japanese wage growth and intervention warnings.
Concerns about the stalled US-Iran conflict are buoying the USD as the focus shifts to the US Nonfarm Payrolls report.

Japanese Finance Minister Satsuki Katayama reiterated on Friday that the government is ready to respond with “decisive action” against excessive Yen volatility, which provided a mild boost to the Yen, yet not enough to trigger any significant recovery.

Macroeconomic data from Japan released earlier on Friday was mixed. Labour Cash Earnings growth accelerated to a 3.5% yearly pace in April, beating expectations of a 3.2% increase, after March’s 3.1% advance. Household Spending, on the other hand, fell 0.5%, though it is unlikely to deter the Bank of Japan (BoJ) from hiking interest rates at its June 16 meeting.

BoJ tightening expectations, however, are failing to offset the US Dollar strength. The Greenback has been appreciating against most major currencies this week, as rising tensions in the Middle East have dampened hopes of a swift end to the US-Iran war, boosting demand for safe-haven assets.

On Friday, traders remain reluctant to bet against the US Dollar ahead of the release of May’s US Nonfarm Payrolls report. The US economy is expected to have created 85K new jobs last month, below the 115K seen in April but still showing some stabilisation of the labour market, to top a week of fairly strong US data, which gives the Federal Reserve (Fed) some leeway to hike interest rates later this year, if inflation remains above target.

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.