The USD/JPY pair extends its decline to around 154.75, the lowest since December 17, during the early Asian session on Monday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) amid heightened alert of Japanese intervention to halt the currency’s recent slide. The US November Durable Goods Orders report is due later on Monday.
Speculation of intervention is growing after traders reported during Friday’s US session that the Federal Reserve Bank of New York had contacted financial institutions to ask about the JPY’s exchange rate. Japan’s top currency official declined to comment earlier that day on whether a rate check was conducted on its end.
Takaichi said on Sunday that she will take all necessary measures to address speculative and highly abnormal movements. This move sparks intervention speculation from Japan and the Fed.
On Friday, the Bank of Japan (BoJ) decided to leave its benchmark rate unchanged at 0.75% at its January meeting, as widely expected. That leaves borrowing costs at the highest level in three decades. The Japanese central bank raised its economic growth forecasts for fiscal years 2025 and 2026. It also slightly nudged up its core consumer inflation outlook for FY 2026 to 1.9% from 1.8%.
Japan is preparing for an election on February 8, with Takaichi’s vow to lower food tariffs causing shockwaves in the Japanese debt market in recent days. Political uncertainty in Japan and expectations for more ambitious fiscally expansionary policies under Takaichi could weigh on the JPY and create a tailwind for the pair.
“Intervention only delays, but not reverses the yen depreciation trend in the current macro set up where there is focus on increased fiscal spending,” said Rong Ren Goh, a fixed-income portfolio manager at Eastspring Investments.
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.
