USD/JPY retreats from 147.15 as risk aversion eases ahead of the FOMC Minutes
|- The US Dollar fails to break above 147.00 and gives away gains as risk aversion fades.
- Hopes of a trade deal between the US and Japan are providing some support to the Yen.
- Later today, the US FOMC Minutes will provide additional guidance for the US Dollar.
The US Dollar has trimmed previous gains on Wednesday’s European session, as market sentiment improved, and is trading with marginal gains against the Yen, nearing the mid-range of the 146.00s after rejection at 147.15.
The pair appreciated about 1.5% over the previous two days, after a letter from President Trump announced 25% tariffs on all products from Japan, and moved the deadline to August 1 from the original July 9.
Hopes of a trade deal are keeping the Yen from falling further
Trade negotiations between the two countries are going on, and the US Secretary, Scott Bessent, is expected to visit the World Expo in Osaka, where he is likely to meet with Japanese officials. This, and the willingness shown by both countries to reach an agreement, is feeding hopes that a deal is still possible, but that means solving critical issues like automobile exports.
In the meantime, the market mood has improved and US Treasury yields pulled lower, which provided some support to the Japanese Yen, highly sensitive to the differentials between Japanese and US bond yields.
Later today, the focus will shift to the minutes of June’s Federal Reserve meeting. Chairman Powell surprised with an unexpectedly hawkish tone at the press release following the decision, and later labour data has backed his views. The risk for the US Dollar is skewed for the upside.
Japanese Yen FAQs
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.
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.
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.
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.
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