The USD/JPY pair extends the rally to a two-week high near 152.65 during the early Asian session on Friday. The Japanese Yen (JPY) weakens against the US Dollar (USD) as traders weigh fresh US sanctions on Russian oil companies. Traders await the delayed release of US Consumer Price Index (CPI) inflation data, which is due later on Friday.
Data released by the Statistics Bureau of Japan on Friday showed that Japan’s National CPI rose by 2.9% YoY in September, compared to the previous reading of 2.7%. Meanwhile, the National CPI ex Fresh food arrived at 2.9% YoY in September versus 2.7% prior, in line with the market consensus. Finally, CPI ex Fresh Food, Energy rose 3.0% YoY in September, compared to the previous reading of 3.3%.
The JPY remains weak in an immediate reaction to Japan’s National CPI data. Fresh US sanctions on major Russian suppliers Rosneft and Lukoil over Russia’s war in Ukraine send oil prices up and weigh on the JPY as well as other currencies related to oil imports.
“The new sanctions were weighing on the yen, as well as other currencies tied to oil imports,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets. “Japan’s a big importer of oil, and higher oil prices hurt,” he said.
The US CPI inflation data for September will take center stage later on Friday despite the US government shutdown. This report could offer some hints about the US interest rate path. The headlines US CPI and core CPI are expected to show a rise of 3.1% YoY in September. If the report shows a surprise downside outcome, this could drag the USD lower against the JPY in the near term.
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.
