USD/JPY drifts higher above 154.50 as BoJ rate hike expectations fade

USD/JPY edges higher to around 154.75 in Thursday’s early Asian session.
The US government shutdown affects economic data releases.
Diminishing odds for a December BoJ rate hike weigh on the Japanese Yen.

Lallalit Srijandorn FXStreet

The USD/JPY pair attracts some buyers near 154.75, the highest since February, during the early Asian session on Thursday. The Japanese Yen (JPY) weakens against the US Dollar (USD) amid a risk-on mood ahead of an expected vote to refund the US government on a short-term basis and diminishing odds for December Bank of Japan (BoJ) rate hike. Traders will take more cues from the Fedspeak later on Thursday.

Reuters reported that the US House of Representatives will try to end a record US government shutdown on Wednesday, with a vote on a stopgap funding package to restart disrupted food assistance, pay hundreds of thousands of federal workers, and revive a hobbled air-traffic control system. The bill will restore funding to government agencies through January 30. Hopes for the end of the US government shutdown could provide some support to the Greenback against the JPY in the near term.

White House Press Secretary Karoline Leavitt said on Wednesday that October jobs and inflation data reports are unlikely to be released as a consequence of the government shutdown. This leaves policymakers without key data to assess the health of the US economy.

Concerns that the new Japanese government will seek to influence the country's central bank into delaying rate hikes could weigh on the JPY and create a tailwind for the pair. Japan's Prime Minister Sanae Takaichi on Wednesday underscored her preference for keeping interest rates low to support a fragile recovery. Takaichi noted that inflation driven by food prices could hurt the economy, and the government will work closely with the BoJ to ensure Japan sees inflation driven by wages.

On the other hand, expectations that Japanese authorities might intervene to stem further weakness in the domestic currency could underpin the JPY. Japan's Finance Minister Satsuki Katayama said on Wednesday that she recently saw one-sided and rapid moves in the currency, adding that she will closely watch FX moves with a high sense of urgency.

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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