Japanese Yen holds steady near 161.50 as traders are on high alert for currency intervention

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USD/JPY flatlines near 161.60 in Wednesday’s early Asian session.
Traders reassess the timing of possible US rate hikes after the Fed’s hawkish signal.
Intervention prospects rise after Katayama-Bessent talks.

The USD/JPY pair trades on a flat note around 161.60 during the early Asian trading hours on Wednesday. Increased expectations of a Federal Reserve (Fed) rate hike this year could underpin the US Dollar (USD) against the Japanese Yen (JPY). However, the potential upside for the pair might be limited amid fears of currency intervention from Japanese officials.

The Fed decided to leave its benchmark interest rate unchanged between 3.50% and 3.75% at its June policy meeting. Kevin Warsh, in his first press conference as chairman said during the press conference that “price stability” would be the Fed’s guiding principle.

Markets read the outcome as hawkish, supporting the Greenback. Expectations for a hike from the Fed of at least 25 basis points at its July meeting are at 37.4%, up from 8.5% a week ago, according to the CME FedWatch tool, while markets are pricing in a 70.2% probability of a hike at the September meeting, up from 29.1% a week earlier.

Traders are on high alert for currency intervention from Japanese authorities after further weakness in the JPY and a call between Japanese Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent. Additionally, Japan’s Chief Cabinet Secretary Minoru Kihara said on Tuesday that he will take appropriate action against the foreign exchange moves if needed.

“Japanese authorities may have wanted to send a message through the US-Japan talks that they are acting in coordination with the US and that the hurdle for intervention is not high,” said Takeru Yamamoto, a trader at Sumitomo Mitsui Trust Bank in New York.

The Bank of Japan's (BoJ) Summary of Opinions from the June monetary policy meeting showed the majority of board members supported raising the policy interest rate at the meeting on the grounds that inflation risks are spreading and underlying Consumer Price Index (CPI) is approaching the 2% 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.