USD/JPY extends the rally to near 155.50, FOMC Minutes in focus

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The USD/JPY pair extends its upside to a fresh nine-and-a-half-month high near 155.50 during the early Asian session on Wednesday. The uptick of the pair is bolstered by worries about Japan’s fiscal stance and awaited US data for signals on the Federal Reserve’s (Fed) next move.

USD/JPY strengthens to around 155.50 in Wednesday’s early Asian session.
BoJ’s Ueda signaled the central bank remains on a rate hike path after the PM meeting.
US Initial Jobless Claims came in at 232,000 in the week of October 18.

While Bank of Japan (BoJ) Governor Kazuo Ueda hinted at the chance of raising interest rates as soon as next month, Japanese Prime Minister Sanae Takaichi has voiced displeasure over the idea and urged the Japanese central bank to cooperate with government efforts to reflate the economy.

Takaichi urged the BoJ to maintain low interest rates, emphasizing that monetary policy should support both robust economic growth and stable price increases. Market expectations that the BoJ may slow down its rate hikes due to the new administration could weigh on the Japanese Yen (JPY) and act as a tailwind for the pair in the near term.

Traders dialed back their bets for an additional interest rate cut by the Fed in December as comments by Fed officials went against the need for further reductions. Hawkish remarks from policymakers could underpin the Greenback against the JPY. Fed Vice Chair Philip Jefferson said on Monday that the Fed should proceed "slowly" with further rate reductions.

Data released by the US Department of Labor's (DOL) on Tuesday showed that there were 232,000 Initial Jobless Claims in the week ended October 18. Continuing Claims came in at 1.957 million, up slightly from 1.926 million in the prior week. For initial claims, weekly data for the previous three weeks weren’t made available. Meanwhile, a report from ADP Research showed that employers cut 2,500 jobs a week on average during the four weeks ending November 1.

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.