The USD/JPY pair climbs to near 157.05, the highest since January 15, during the early Asian session on Thursday. The US Dollar (USD) strengthens against the Japanese Yen (JPY) as traders assess the latest Federal Open Market Committee (FOMC) Minutes. Traders await the release of the US September Nonfarm Payrolls (NFP) later on Thursday, followed by the Philly Fed Manufacturing Index, Existing Home Sales, and the speeches by the Fed’s Lisa Cook and Austan Goolsbee.
Federal Reserve (Fed) officials are divided and cautious about the path forward for interest rates. Most participants indicated further rate cuts would likely be appropriate over time, but several indicated they did not necessarily view a reduction in December as appropriate, according to minutes of the Federal Open Market Committee’s (FOMC) October 28-29 meeting.
The decision to reduce the federal funds rate was split, with one member favoring a jumbo 50 basis point (bps) cut and another preferring to leave rates unchanged. Expectations for a December rate cut have fallen following the release of the minutes, with the CME FedWatch tool showing only a 30% chance for a cut. This, in turn, provides some support to the Greenback against the JPY.
On the other hand, the upside for the pair might be limited amid intervention fears. Finance Minister Satsuki Katayama said that the Japanese government was closely monitoring markets with a high sense of urgency. “The big move has obviously been done over yen… The risk of intervention obviously rises,” said Sonja Marten, Head of Research Currencies and Monetary Policy at DZ BANK.
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.
