USD/JPY flat lines above 158.00 amid US tariff threats, Japan fiscal concerns

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USD/JPY holds steady around 158.15 in Wednesday’s early Asian session.
Trump's tariff threats against European nations could prompt a repeat of the so-called "Sell America."
Concerns about Japan's fiscal position could weigh on the Japanese Yen.

The USD/JPY pair trades on a flat note near 158.20 during the early Asian session on Wednesday. The pair steadies as US President Donald Trump's renewed tariff threats offset political uncertainty in Japan. Traders will closely monitor Trump’s speech at the World Economic Forum in Davos, Switzerland, later on Wednesday.

Trump said over the weekend that he would impose an additional 10% import tariff from February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and the United Kingdom (UK) until the US is allowed to buy Greenland. White House threats to Europe over the future of Greenland triggered the “Sell America” trade, which exerted some selling pressure on the Greenback.

On the other hand, the Japanese Yen (JPY) fell overnight as a selloff in Japanese government bond markets accelerated. Yields on Japan’s 30- and 40-year bonds climbed by over 25 basis points (bps), the biggest move since US President Donald Trump’s Liberation Day tariffs rattled global markets last year.

Japan’s Prime Minister Sanae Takaichi’s plans to cut taxes and boost spending are raising doubts about the financial health of one of the world’s most indebted governments. This, in turn, could drag the JPY lower against the US Dollar (USD) in the near term.

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.