The USD/JPY pair tumbles to around 158.25 during the early Asian session on Thursday. The Japanese Yen (JPY) rebounds against the US Dollar (USD) after Japanese officials warned of potential intervention to shore up the currency. Traders will keep an eye on the weekly US Initial Jobless Claims report later on Thursday, along with the Fedspeak.
Earlier this week, the JPY fell amid worries about looser fiscal and monetary policy as speculation rises that Prime Minister Sanae Takaichi will call an early snap election to consolidate her power. However, the downside for the JPY might be limited amid intervention fears from Japanese authorities. Japan’s Finance Minister Satsuki Katayama issued another verbal warning on Wednesday, saying officials would take “appropriate action against excessive FX moves without excluding any options.”
The US producer prices picked up slightly in November, while US Retail Sales increased more than expected during the same period. Furthermore, data released last week showed that the US Unemployment Rate ticked lower to 4.4% in December.
These reports support the case that the US Federal Reserve (Fed) will keep rates on hold for the next several months, which could provide some support to the Greenback against the JPY. Morgan Stanley analysts pushed back their expectations for rate cuts to June and September, from January and April, after Friday’s jobs data.
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.
