USD/JPY picks up to levels past 156.00 amid an improving market mood

The US Dollar returns above 156.00 as the Yen drops across the board.
A successful Japanese bond auction has eased risk aversion on Tuesday
Fed-BoJ monetary policy divergence is likely to weigh on US Dollar rallies.

Guillermo Alcala FXStreet

The US Dollar remains bid against a softening Japanese Yen on Tuesday's European trading session. A somewhat brighter market mood is weighing on JPY, and provides support to the Greenback to extend its recovery from Monday’s lows near 154.65 to levels above 156.00 at the time of writing.

The Japanese Yen is the worst-performing currency on Tuesday, hit by a moderate improvement in the market sentiment, as the dust from the unexpectedly hawkish comments by BoJ Governor Kazuo Ueda settles.

BoJ tightening hopes likely to support the Yen

Ueda put investors on their heels on Monday, affirming that the bank was contemplating the “pros and cons” of raising interest rates in December. These comments crushed investors’ appetite for risk, triggering generalised declines in stocks and government bonds and sending the Yen rallying across the board.

A well-received Japanese Government Bond auction earlier on Tuesday calmed investors' fears, although risk appetite remains frail so far.

Data from the US released on Monday added to evidence of the softening economic momentum. November’s ISM Manufacturing Purchasing Managers Index (PMI) revealed the sector’s activity contracted for the ninth consecutive month, with new orders and employment indicators deteriorating and inflation growing.

These figures add pressure on the US Federal Reserve to cut interest rates next week and probably a few more times this year. The BoJ, on the contrary, seems determined to tighten its monetary policy further in the coming months. This monetary policy divergence is expected to keep US Dollar rallies limited.

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

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

GBP/USD surges to multi-day peaks past 1.3250

GBP/USD leaves behind Friday’s small pullback and advances past 1.3250 level, or five-day highs, on Monday. Cable’s upside follows extra losses in the Greenback, while traders continue to assess the geopolitical front and upcoming key events.

EUR/USD pops to daily highs near 1.1430

EUR/USD starts the week on a positive note, climbing to as high as the 1.1430 zone, or daily tops, on Monday. The pair’s recovery comes in response to the broad-based US Dollar weakness, while investors continue to monitor developments from the Middle East ahead of the beginning of the ECB's annual forum.

Gold struggles to attract investors

Gold remains under marked selling pressure, holding on just above the key $4,000 mark per troy ounce at the beginning of the week. The precious metal reverses two daily advances in a row as renewed effervescence in the Middle East revive inflation concerns and bolster Fed rate hike expectations.

Bitcoin four-year cycle: BTC risks 75% drawdown with four months of bear market still ahead

Bitcoin price continues to trend downward below the $60,000 support zone after losing over 50% of its value since the $126,199 high in October. Bitcoin’s four-year cycle, measured from cycle tops to bottoms, suggests that four months of a bear market are still ahead.

Just like Fed, is BoJ’s independence under threat?

When talking about central bank independence, most of the focus has been on Donald Trump’s pressure on the Federal Reserve. But a similar story, a quieter one for now, seems to be happening on the other side of the Pacific: Japan’s government may be testing the Bank of Japan’s independence.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.