Japan’s Katayama says will closely monitoring bond markets with heightened urgency

Lallalit Srijandorn FXStreet

Japanese Finance Minister (FM) Satsuki Katayama said on Friday that the officials will closely monitoring bond markets with heightened urgency.

Key quotes

Interest rate shifts driven by multiple market factors.

Closely monitoring bond markets with heightened urgency.

No comment on specific levels.

Will aim to gradually lower debt-to-GDP ratio.

Have emphasized to global leaders our goal to maintain fiscal sustainability.

Will keep thoroughly explaining stance to markets to maintain credibility.

Taking note of prime minister Takaichi's comments on new government bond issuance near 40 trillion yen.

Takaichi's remarks hold major importance.

Always enjoy speaking with US Bessent, have explained Japan's efforts to target fiscal sustainability and growth.

Bessent said "good" when explained, didn't get demand as reported by media.

Bessent understands, supports our position.

Bessent has long believed yen undervalued due largely to interest rate gaps.

Market reaction

At the time of writing, the USD/JPY pair is up 0.10% on the day at 155.95.

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

Lallalit Srijandorn

FXStreet

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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