Japanese Yen sticks to intraday gains amid reviving safe-haven demand, intervention fears
- The Japanese Yen kicks off the new week on a positive note amid a combination of factors.
- Reviving safe-haven demand benefits the JPY amid renewed government intervention fears.
- A modest USD downtick further weighs on USD/JPY, though the downside seems cushioned.
The Japanese Yen (JPY) remains on the front foot against a retreating US Dollar (USD) and draws support from a combination of factors. Rising tensions between the US and Venezuela, along with concerns about renewed Israel-Iran conflict and persistent uncertainties stemming from the protracted Russia-Ukraine war, boost demand for the safe-haven JPY. Furthermore, comments from Japan’s top foreign exchange official, Atsushi Mimura, fueled speculation about a possible government intervention and further benefited the JPY.
Meanwhile, Bank of Japan (BoJ) Governor Kazuo Ueda left the door open to further tightening, though he remained vague on the exact timing and pace of future rate hikes. Adding to this, worries about Japan's worsening fiscal condition, aggravated by the recent steep rise in Japanese government bond (JGB) yields, might hold back the JPY bulls from placing aggressive bets. Adding to this, hawkish comments from the US Federal Reserve (Fed) officials could help limit deeper USD losses and offer some support to the USD/JPY pair.
Japanese Yen is underpinned by reviving safe-haven demand, renewed intervention speculations
- Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, said on Monday that he is concerned about one-way moves and warned of appropriate action against an excessive decline in the Japanese Yen.
- The US intercepted a Venezuelan oil tanker over the weekend and is in active pursuit of a third in less than two weeks. This comes after US President Donald Trump last week ordered a blockade of sanctioned tankers entering and leaving Venezuela.
- Israel's Prime Minister Benjamin Netanyahu said that officials are concerned that Iran is reconstituting nuclear enrichment sites and are preparing to brief Trump on options for attacking the missile program again, NBC News reported on Saturday.
- Russian President Vladimir Putin’s top foreign policy aide said on Sunday that changes made by the Europeans and Ukraine to US proposals did not improve prospects for peace. This contributes to driving safe-haven flows towards the JPY.
- The Bank of Japan, as was widely expected, raised its policy rate to 0.75%, or a 30-year high, at the end of the December meeting on Friday and reiterated that it would continue to hike rates if the economy and prices move in line with forecasts.
- In the post-meeting press conference, BoJ Governor Kazuo Ueda said that the central bank will closely look at the impact of the latest interest rate change, and the pace of monetary adjustment will depend on economic, price, and financial outlooks.
- Ueda, however, did not offer clarity on future hikes. Moreover, concerns about Japan's worsening fiscal health – led by a sharp rise in Japanese government bond yields and Prime Minister Sanae Takaichi's spending plan – might cap gains for the JPY.
- The recent hawkish comments from influential Federal Reserve officials pushed the US Dollar to a one-week high on Friday and should contribute to limiting any meaningful corrective slide for the USD/JPY pair, warranting caution for bears.
- In fact, Cleveland Fed President Beth Hammack said that monetary policy is in a good place to pause and assess the effects of 75 basis points (bps) of interest rate cuts on the economy during the first quarter, Bloomberg reported on Sunday.
- Traders, however, are still pricing in a greater possibility of two more interest rate cuts by the US central bank in 2026. This keeps a lid on a further USD appreciating move ahead of the delayed US Q3 GDP growth figures on Thursday.
USD/JPY could find decent support and attract dip-buying near 157.00 resistance breakpoint
Friday's breakout through the 156.95-157.00 horizontal barrier was seen as a fresh trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought zone. This, in turn, suggests that any subsequent fall is more likely to attract fresh buyers near the said resistance breakpoint. Some follow-through buying, however, could pave the way for deeper losses towards the 155.50 intermediate support en route to the 155.00 psychological mark. The latter should act as a key pivotal point, which, if broken, might shift the bias in favor of bearish traders.
On the flip side, bulls might await a sustained move beyond the 157.85-157.90 region, or the multi-month top, before placing fresh bets. The USD/JPY pair might then accelerate the positive move towards the next relevant hurdle near the 158.45 area before aiming to challenge the year-to-date peak, around the 159.00 neighborhood, touched in January.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
