USD/JPY weakens below 152.50 as Japan’s Takaichi eases policy concerns

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USD/JPY declines to near 152.20 in Wednesday’s early Asian session.
Japan’s Takaichi and US Treasury Secretary eased some concerns about more expansionary fiscal and monetary policy in Japan.
The Fed is widely expected to cut its benchmark interest rate by 25 bps at the October meeting on Wednesday.

The USD/JPY pair attracts some sellers to around 152.20 during the early Asian session on Wednesday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) after officials ease policy concerns. All eyes will be on the US Federal Reserve (Fed) interest rate decision later on Wednesday, where a 25 basis points (bps) rate cut is fully priced in.

US President Donald Trump and Japan’s Prime Minister Sanae Takaichi on Tuesday signed a framework for securing the supply of critical minerals and rare earths. Additionally, Takaichi and US Treasury Secretary Scott Bessent eased some concerns about more expansionary fiscal and monetary policy in the country.

Japan's Economic Minister, Minoru Kiuchi, said that Japan can boost its long-term potential growth by stimulating demand and keeping the labor market tight while being mindful of the need for fiscal discipline. Kiuchi added that the government will closely watch the impact of currency moves on Japan's economy.

The markets might turn cautious ahead of the Fed policy meeting later on Wednesday. The US central bank is expected to lower interest rates by a quarter point at its October meeting and could deliver further rate reductions at the next two meetings as well, according to the October CNBC Fed Survey.

The attention will shift to the Press Conference following the rate decision. Any dovish comments from Fed Chair Jerome Powell could weigh on the Greenback against the JPY 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.