Japanese Yen steadies against US Dollar following Trump’s SOTU

USD/JPY holds losses as the Dollar remains subdued after President Trump’s State of the Union.
Trump threatened higher tariffs on countries “playing games” after the Supreme Court blocked sweeping levies.
The Japanese Yen could weaken further after PM Takaichi questioned additional BoJ rate hikes.

Akhtar Faruqui FXStreet

USD/JPY loses ground after registering gains in the previous session, trading around 155.90 during the Asian hours on Wednesday. The pair holds losses as the US Dollar (USD) remains subdued after US President Donald Trump delivered his first State of the Union (SOTU) address of his second administration before a joint session of Congress.

Trump said that he has overseen a "turnaround for the ages" and praised his economic achievements, focusing on lower inflation. Trump further stated that his administration has made efforts to stem illegal immigration and fentanyl coming over the border. He has threatened to impose higher tariffs on countries that "play games" with recent trade deals after the Supreme Court blocked many of the sweeping global levies.

The downside of the USD/JPY pair could be restrained as the Japanese Yen (JPY) may decline on reports, suggesting that Japanese Prime Minister (PM) Sanae Takaichi expressed concerns about further interest rate hikes during her last week's meeting with the Bank of Japan (BoJ) Governor Kazuo Ueda.

However, BoJ Governor Ueda stated that the discussion broadly covered economic and financial developments, adding that the Prime Minister made no specific monetary policy requests.

Japan’s Deputy Chief Cabinet Secretary Masanao Ozaki said Wednesday that monetary policy specifics should be left to the Bank of Japan. Meanwhile, Prime Minister Sanae Takaichi stated she will closely monitor foreign exchange moves with a heightened 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

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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