Japanese Yen remains subdued near 159.00 as BoJ expected to adopt hawkish tone

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USD/JPY remains under pressure for a third straight session, trading near 159.00 during Asian hours on Wednesday.

USD/JPY stays subdued as Japanese Yen gains on expectations of a more hawkish BoJ tone this week.
Traders expect the BoJ to keep rates unchanged on Thursday.
Fed expected to hold benchmark rates steady in the 3.50%–3.75% range on Wednesday.

USD/JPY remains under pressure for a third straight session, trading near 159.00 during Asian hours on Wednesday. The pair stays subdued as the Japanese Yen (JPY) gains support on expectations that the Bank of Japan (BoJ) could adopt a more hawkish tone at this week’s policy meeting, with a weaker Yen and rising oil prices from the Iran conflict fueling inflation concerns.

Despite this, the BoJ is expected to leave rates unchanged on Thursday as it assesses Middle East risks to the economy. Meanwhile, Prime Minister Sanae Takaichi will meet US President Donald Trump after he withdrew a request for Japan to deploy warships to the Strait of Hormuz.

The US Dollar (USD) holds firm against its peers, supported by cautious market sentiment ahead of the Federal Reserve’s policy decision. According to the CME FedWatch Tool, markets broadly expect the Fed to keep its benchmark interest rate unchanged in the 3.50%–3.75% range. If confirmed, it would mark a second consecutive pause, highlighting a cautious approach amid growing economic and geopolitical uncertainty.

Investors are also awaiting guidance from Fed Chair Jerome Powell on how the recent rise in oil prices may influence the policy outlook. Crude prices could extend gains following US military strikes on Iranian coastal sites near the Strait of Hormuz, citing threats from anti-ship missiles to global shipping, according to Reuters. The BBC also reported that Israel claimed responsibility for strikes that killed senior Iranian officials, including Ali Larijani and Basij chief Gholamreza Soleimani.

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.