The Japanese yen (JPY) attracted strong follow-on buyers for a second straight day, rising to a one-week high against a softer US dollar (USD) during the Asian session on Wednesday. Comments by Japan’s Economy Minister Minoru Kiuchi on Tuesday fueled speculation of possible government intervention to stem further JPY weakness. Furthermore, the outcome of a high-profile meeting between Japan’s new Prime Minister Sanae Takaichi and US President Donald Trump is also contributing to JPY’s relative outperformance.
Meanwhile, supportive remarks from US Treasury Secretary Scott Bessent, along with bets on an imminent rate hike from the Bank of Japan (BoJ), are providing a further boost to the JPY. The USD, on the other hand, is struggling to attract buyers amid dovish expectations from the Federal Reserve (Fed), pulling the USD/JPY pair closer to the mid-151.00 level in the last hour. However, the BoJ could resist an early tightening amid Takaichi’s aggressive fiscal spending plans. This may limit the JPY ahead of the crucial Fed rate decision and BoJ policy meeting.
Japanese yen benefits from intervention fears and deviations from BoJ-Fed policy
- On Wednesday, US Treasury Secretary Scott Bessent urged Japan’s government to give the Bank of Japan policy room to keep inflation expectations anchored and avoid excessive exchange rate volatility. The remarks revived market expectations that the United States may continue to pressure Japan to tighten monetary policy more quickly.
- This follows a verbal intervention by Japan’s Economy Minister Minoru Kiuchi on Tuesday, stressing the importance of stable currency movements that reflect economic fundamentals. Kiuchi added that he plans to assess the impact of currency changes on Japan’s economy and that it is important to avoid rapid, short-term fluctuations.
- In addition, US President Donald Trump and Japan’s new Prime Minister Sanae Takaichi signed an agreement that sets out a framework to secure the mining and processing of rare earths and other critical minerals. This contributes to the Japanese yen’s relative outperformance against its G-10 peers for the second day in a row.
- Meanwhile, Takaichi’s pro-stimulus stance to revitalize the economy could further delay the BoJ’s tightening plan. However, traders seem confident that the central bank will eventually raise interest rates in December or early next year. This marks a significant divergence from dovish Federal Reserve expectations.
- The U.S. Federal Reserve is widely expected to cut borrowing costs by 25 basis points at the end of a two-day meeting later today. Furthermore, traders have priced in a higher chance of another interest rate cut in December, keeping the US dollar down and contributing to the USD/JPY pair’s ongoing corrective decline.
- Aside from the crucial Fed interest rate decision, market participants will be closely scrutinizing the latest BoJ policy update on Thursday. A further hawkish signal would be enough to boost the JPY further. However, a surprise dovish tilt, while unlikely, would nullify any positive outlook for the JPY and trigger aggressive selling.
USD/JPY could find decent support and attract buyers near 151.10-151.00
This week’s failure near the 153.25-153.30 barrier, or the monthly swing high, constitutes the formation of a bearish double-top pattern on the daily chart and supports the case for a further depreciating move for the USD/JPY pair. That said, oscillators on the said chart are holding in positive territory, suggesting that any further slip may find some support near the 151.10-151.00 region. However, a convincing break below the latter should pave the way for deeper losses towards the psychological mark of 150.00 with some intermediate support near the 150.45 zone.
On the other hand, any meaningful recovery beyond the Asian session high, around the 152.20 area, is more likely to attract fresh sellers and remain capped near the 152.90-153.00 region. Some follow-up buying leading to further strength beyond the 153.25-153.30 zone would be seen as a fresh breakout and allow the USD/JPY pair to regain the 154.00 mark. Momentum may extend further towards the next relevant resistance near the mid-154.00s on the way to the 154.75-154.80 region and 155.00 psychological mark.
Japanese Yen Frequently Asked Questions
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 difference between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its actions are key to the yen. The BoJ has sometimes intervened directly in foreign exchange markets, generally to lower the value of the yen, although it often refrains from doing so due to political concerns of its main trading partners. The BoJ’s ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its major currency peers due to increasing policy divergence between the Bank of Japan and other major central banks. Recently, the gradual unwinding of this ultra-loose policy has provided some support to the yen.
Over the past decade, the BoJ’s stance of maintaining an ultra-loose monetary policy has led to a growing policy divergence with other central banks, particularly the US Federal Reserve. This supported a widening of the spread between the 10-year US and Japanese bonds, which favored the US dollar against the Japanese yen. The BoJ’s decision in 2024 to gradually abandon ultra-loose policy, combined with interest rate cuts by other major central banks, narrows this gap.
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 into the Japanese currency due to its perceived reliability and stability. Turbulent times are likely to strengthen the yen’s value against other currencies considered riskier to invest in.