USD/JPY picks up to the 153.25, but maintains a strong bearish bias

USD/JPY picks up above 153.00, but remains 2.8% down on the week.
Prime Minister Takaichi's victory in Sunday's elections has sent the Yen skyrocketing.
The US Dollar remains vulnerable heading into the release of the US Nonfarm payrolls report.

Guillermo Alcala FXStreet

The US Dollar (USD) has bounced up from fresh11-day lows at 152.80 against the Japanese Yen (JPY) on Wednesday, and is trading at the 153.25 area at the time of writing. The pair has trimmed some losses ahead of the release of January’s US payrolls figures, but remains more than 0.7% down in the daily chart.

The Yen has surged across the board following a strong victory of Prime Minister Sanae Takaichi at Sunday’s elections. Investors are shrugging off fiscal concerts for now, and have pushed the Nikkei to fresh record highs, amid confidence that Takaichi’s stimulus and tax cuts will boost consumer spending, ultimately increasing corporate profits.

Yen, Nikkei surge after Takaichi's victory

Nikkei’s rally stimulates demand for the Yen, as foreign traders must exchange their local currencies for JPY to purchase Japanese stocks. Against this background, the Yen has rallied nearly 3% against the USD so far this week.

US economic data, on the contrary, has been far from supportive of the USD. Retail Sales stalled in December, against market expectations of 0.4% growth, with the core retail consumption dropping 0.1% in December and November’s reading revised down to 0.2% growth from 0.4% previous estimations.

On Wednesday, markets are focusing on January’s delayed US Nonfarm Payrolls Report. Net jobs are expected to have risen by 70K, up from 50K in December. The Unemployment rate is forecast to remain steady at 4.4% while wage growth is expected to have eased to an annualised rate of 3.6%, down from 3.8% in the previous month.

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.

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