Japanese Yen remains weaker as US Dollar firms ahead of PCE inflation data

USD/JPY holds firm as markets expect the Federal Reserve to keep rates unchanged next week.
Japan’s Katayama said Japanese authorities are ready to take all necessary steps in currency markets as oil prices surge.
Japan plans to release about 80 million barrels from strategic reserves, roughly 45 days of supply, to ease disruptions.

Akhtar Faruqui FXStreet

USD/JPY extends its winning streak for the fourth successive session, trading around 159.40 during the early European hours on Friday. The pair remains stronger as the US Dollar (USD) may hold its ground as futures markets and economists expect the Federal Reserve to keep interest rates unchanged at next week’s policy meeting, with the benchmark federal funds rate currently at 3.50%–3.75%.

Meanwhile, traders await January’s Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred inflation gauge, is due later on Friday, though it will not reflect the impact of the Iran war. Traders will also observe the fourth-quarter US GDP growth and March consumer confidence.

Japanese Finance Minister Satsuki Katayama said authorities are ready to take all necessary measures in currency markets as Oil prices surge. Meanwhile, Kazuo Ueda, Governor of the Bank of Japan (BoJ), warned that a weaker Yen could intensify imported inflation amid rising oil prices and may force the central bank to accelerate policy normalization. Ueda added that exchange rates now play a larger role in influencing inflation than in the past, giving them greater importance in policy decisions.

DBS Group Research strategist Chang Wei Liang noted that the USD/JPY pair is approaching the key 160 level that previously prompted intervention, although Japanese officials have remained largely silent. Liang said Japan’s strong dependence on Middle East Oil and its sizeable strategic reserves could allow authorities to tolerate the pair near 160 for now, with only limited further weakness in the Japanese Yen expected.

Japan plans to release about 80 million barrels of oil from its strategic reserves—roughly 45 days of supply—to help ease global disruptions caused by the Middle East war. Japan relies on the Middle East for around 95% of its oil imports, with nearly 90% of shipments passing through the Strait of Hormuz, which Iran effectively controls.

Tanker traffic through the Strait has been largely blocked amid the United States-Israel war with Iran. Prime Minister Sanae Takaichi said in a broadcast statement that Japan will begin releasing its share from March 16 in coordination with the Group of Seven (G7) and the International Energy Agency (IEA).

Meanwhile, Japanese Trade Minister Ryosei Akazawa said Friday that discussions will continue regarding Japan’s allocation and timing within the IEA-led coordinated oil reserve release. Akazawa added that Japanese companies are exploring alternative crude supply sources, including the United States, Central Asia, and South America.

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.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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