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Japanese Yen softens as hot US PPI boost US Dollar

  • USD/JPY trades firmer around 160.25 in Friday’s early Asian session. 
  • US PPI rose more than expected in May. 
  • Japanese authorities warned speculators that officials are ready to take "decisive action" to curb excessive currency volatility. 

The USD/JPY pair gains traction to near 160.25 during the early Asian session on Friday. Hotter-than-expected US Producer Price Index (PPI) data provides some support to the US Dollar (USD) against the Japanese Yen (JPY). Traders will keep an eye on the preliminary reading of the Michigan Consumer Sentiment Index for June, which is due later in the day. 

Data released by the US Bureau of Labor Statistics on Thursday showed that the US Producer Price Index (PPI) climbed 6.5% YoY in May, compared to 5.7% in April. This figure came in above the market expectation of 6.4% and registered its highest level since November 2022. On a monthly basis, the PPI rose by 1.1%, compared to the market consensus of 0.7%. 

This report has reinforced a "higher for longer" stance from the US Federal Reserve (Fed), which could lift the Greenback in the near term. "The Fed is clearly missing its inflation target by a lot more than it is missing its employment objective," said John Ryding, chief economic advisor at Brean Capital. "The PPI report should further embolden those on the FOMC who think a rate hike might be needed later in the year,” Ryding added. 

Markets are on high alert as USD/JPY hovers near the critical 160.00 threshold, the level seen as a trigger for official intervention. This, in turn, might underpin the Japanese Yen and cap the upside for the pair. Finance Minister Satsuki Katayama earlier this week issued a verbal warning, saying that the government is monitoring speculative moves and remains prepared to take decisive measures to prevent the domestic currency weakness.

Japan’s Finance Minister Satsuki Katayama said on Friday that the Bank of Japan’s (BoJ) monetary policy meeting on June 15-16 will proceed as planned despite Governor Kazuo Ueda’s absence. Ueda is in the hospital with an infected liver cyst. Deputy Governor Ryozo Himino will chair the meeting, marking the first time a BOJ governor has missed a policy session since 1998.  

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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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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