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Japanese Yen softens despite intervention fears

  • USD/JPY trades with mild gains near 161.80 in Monday’s Asian session. 
  • The US and Iran appear to be returning to talks to end the war. 
  • Traders are on high alert for further Japanese Yen intervention as the currency remains highly volatile near the 162.00 psychological level. 

The USD/JPY pair posts modest gains around 161.80 during the Asian trading hours on Monday, bolstered by uncertainty surrounding US-Iran talks. Nonetheless, the potential upside might be limited amid fears of intervention from Japanese authorities. Traders will keep an eye on the US June Nonfarm Payrolls (NFP) report, which is due later on Thursday. 

A US President Donald Trump administration official said on Monday that the US and Iran will “stand down for now” after both sides traded fire near the Strait of Hormuz. The US official added that vessels can move freely in the strait, but the interim agreement has not been reflected in the waterway. Two countries plan to meet on Tuesday in Qatar, Axios reported. 

Markets are on high alert for currency intervention from Japanese officials, which might support the Japanese Yen (JPY) and act as a headwind for the pair. Japan’s Chief Cabinet Secretary Minoru Kihara said last week that officials will take appropriate action against the foreign exchange moves if needed.

The Bank of Japan (BoJ) hawkish board member Naoki Tamura stated last week that the central bank should raise interest rates once every few months and stand ready to speed up the pace of hikes, highlighting the BoJ’s focus on inflationary risks from the Middle East conflict.

The Japanese central bank is scheduled to hold its next monetary policy meeting on July 30–31, when it is widely expected to hold rates steady but will also update quarterly forecasts that markets will parse for signals on the timing of the next hike. A Reuters poll taken before the June hike showed most economists forecasting a rate increase to 1.25% in the fourth quarter (Q4).

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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