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Japanese Yen softens despite fresh currency intervention threats

  • USD/JPY edges higher to near 160.20 in Tuesday’s early Asian session. 
  • Speculation that the Fed will tighten its monetary policy supports the US Dollar. 
  • Japan’s Katayama said officials were prepared for decisive measures to prevent domestic currency weakness. 

The USD/JPY pair trades in positive territory around 160.20 during the Asian trading hours on Tuesday. Escalation in the Middle East continues to boost the US Dollar (USD) against the Japanese Yen (JPY). However, fears of imminent currency intervention by Japanese authorities might cap the upside for the pair. 

The US economy posted a third straight month of strong job gains in May, with the US Nonfarm Payrolls (NFP) rising by 172K in May, versus the 179K increase (revised from 115K). This figure came in stronger than the market expectation of 85K. Meanwhile, the Unemployment Rate remained unchanged at 4.3% in May, in line with the market consensus.

Traders raise their bets on the US Federal Reserve (Fed) rate hike after the upbeat US jobs data, supporting the Greenback. Markets are now pricing in a 43% chance of a quarter-point rate hike in December, up from just about 14% a month ago, according to the CME FedWatch tool.

Japanese authorities have issued strong verbal warnings, stating that the government is fully prepared to take decisive and appropriate action to protect the domestic currency. This, in turn, could underpin the JPY and create a headwind for the pair. Japan’s Finance Minister Satsuki Katayama on Tuesday emphasized that the stance is unchanged and authorities are prepared for decisive measures.

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.

Author

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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