Japanese Yen slides back closer to 155.00 vs. USD; downside potential seems limited

USD/JPY ticks higher as Japan’s fiscal concerns and delayed BoJ rate hike bets undermine the JPY.
Intervention fears and the cautious market mood could limit deeper losses for the safe-haven JPY.
Tariff jitters and dovish Fed expectations could act as a headwind for the USD and cap the major.

Haresh Menghani FXStreet

The USD/JPY pair edges higher during the Asian session on Tuesday and looks to build on the previous day's bounce from the 154.00 mark. Spot prices currently trade just below the 155.00 psychological mark, up nearly 0.15% for the day, though the upside seems limited amid a mixed fundamental backdrop.

Investors remain worried about Japan's fiscal health amid expectations that Prime Minister Sanae Takaichi will announce more stimulus to boost the economy. Furthermore, Japan's weak Q4 GDP growth figures seem to have tempered market expectations for an immediate rate hike by the Bank of Japan (BoJ), which, in turn, undermines the Japanese Yen (JPY) and acts as a tailwind for the USD/JPY pair.

Apart from this, a modest US Dollar (USD) turns out to be another factor lending support to the currency pair. Any meaningful USD appreciation, however, seems limited on the back of growing worries about the economic fallout from US President Donald Trump's new global tariffs of 15%. Moreover, bets for more rate cuts by the US Federal Reserve (Fed) should keep a lid on the USD and the USD/JPY pair.

Meanwhile, the dovish Fed outlook marks a significant divergence in comparison to the growing acceptance that the BoJ will stick to its policy normalization path. Furthermore, reports suggest that US Treasury Secretary Scott Bessent personally led a January “rate check” during the JPY's sharp slide towards the 158 against the USD amid political uncertainty ahead of Japan’s lower house election.

This keeps the risk of a joint intervention to stem any meaningful JPY downfall and should contribute to capping the USD/JPY pair. Traders now look forward to the US economic docket – featuring the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index. This, along with speeches from influential FOMC members, might provide some impetus to the buck and the USD/JPY pair.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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