USD/JPY gathers strength above 155.50 as upbeat US data bolsters Dollar

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The USD/JPY pair attracts some buyers to around 155.55 during the early Asian session on Tuesday. The upbeat US economic data provides some support to the Greenback against the Japanese Yen (JPY).

USD/JPY rises to near 155.55 in Tuesday’s early Asian session.
US manufacturing activity expanded by the most since 2022.
The BoJ has signaled a gradual tightening path but remains cautious.

The USD/JPY pair attracts some buyers to around 155.55 during the early Asian session on Tuesday. The upbeat US economic data provides some support to the Greenback against the Japanese Yen (JPY). The Bureau of Labor Statistics (BLS) will not publish the January employment report on Friday as scheduled due to the partial government shutdown.

Data released by the Institute for Supply Management (ISM) showed on Monday that the US Manufacturing Purchasing Managers' Index (PMI) improved to 52.6 in January from 47.9 in December. This figure came in stronger than the market expectation of 48.5 and registered the strongest expansion since 2022.

This report suggested the US Federal Reserve (Fed) could remain on hold for an extended period, boosting the US Dollar (USD). Traders slightly reduced bets on Fed rate cuts following the upbeat PMI data. Money markets showed the next reduction coming in July.

Japanese Prime Minister Sanae Takaichi has called for a snap general election on February 8. Fiscal concerns and political uncertainty in Japan could weigh on the Japanese Yen in the near term. However, the Bank of Japan (BoJ) Summary of Opinions from the January 22-23 meeting revealed growing hawkishness. Board members warned against falling "behind the curve" on inflation and called for timely rate hikes if growth and inflation outlooks remain stable. This, in turn, might help limit the JPY’s losses.

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.