USD/JPY edges lower after registering gains in the previous day, trading around 158.70 during the Asian hours on Wednesday. The pair weakens as the Japanese Yen (JPY) gains support following the release of the Bank of Japan’s (BoJ) January Meeting Minutes.
A BoJ member noted that while rising interest rates could weigh on consumption, the broader financial system impact would likely remain contained. Policymakers agreed that with real interest rates still deeply negative, further rate hikes would be appropriate if economic and inflation projections are met. Most members also emphasized a flexible approach, favoring decisions at each meeting rather than committing to a fixed pace of tightening.
According to Danske Bank’s research team, recent Japanese data have softened, with the Composite PMI declining and core CPI falling below target for the first time in four years, largely due to fuel subsidies. However, input costs remain elevated, and the Japanese Yen continues to show weakness. The bank expects the BoJ to deliver its next rate hike in April, with markets currently pricing around a 50% probability.
Meanwhile, Brown Brothers Harriman’s Elias Haddad noted that USD/JPY is trading sideways just below 159.00. While both headline and core inflation slowed in February, underlying price pressures remain above the BoJ’s fiscal 2026 projections. Strong outcomes from spring wage negotiations are seen as supportive of renewed policy tightening, reinforcing expectations for a potential rate hike at the BoJ’s April 28 meeting.
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.
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.
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.
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.
