USD/JPY drifts lower below 152.00 amid renewed trade tensions

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USD/JPY edges lower to near 151.80 in Wednesday’s early Asian session.
Fed’s Powell said the central bank is on track to deliver another quarter-point rate cut later this month.
Analysts expect political uncertainty might delay additional BoJ rate hikes.

The USD/JPY pair attracts some sellers to around 151.80 during the early Asian session on Wednesday. The US Dollar (USD) weakens against the Japanese Yen (JPY) amid escalating trade tensions between the US and China and a persistent risk-off environment. The Federal Reserve officials are scheduled to speak later on Wednesday, including Stephen Miran, Christopher Waller and Jeff Schmid.

Reuters reported on Tuesday that the US and China began charging additional port fees on ocean shipping firms that move everything from holiday toys to crude oil. Additionally, US President Donald Trump said that he could still impose 100% tariffs on China on November 1 or sooner, depending on Beijing’s next move in the rare earths dispute.

Fed Chair Jerome Powell stated that the US central bank is on track to deliver another quarter-point interest-rate reduction later this month, even as a government shutdown significantly reduces its read on the economy. Powell highlighted the low pace of hiring and noted that it may weaken further. Expectations for a Fed rate cut in October were little changed after Powell’s comments. Investors see a nearly 100% possibility of a rate cut, according to the CME FedWatch tool.

On the other hand, political uncertainty in Japan, particularly following the withdrawal of the Komeito party from the ruling coalition, could create a challenge for the Bank of Japan (BoJ) to hike interest rates further and continue to undermine the JPY. Last week, Etsuro Honda, a close economic adviser to Sanae Takaichi, said that the BoJ should be cautious about raising interest rates again, as the economy is still fragile.

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.