The USD/JPY pair posts modest gains near 156.50 during the early Asian session on Monday. Less dovish Federal Reserve (Fed) expectations could provide some support to the US Dollar (USD) against the Japanese Yen (JPY). Traders will keep an eye on the US September Producer Price Index (PPI) report, which will be released later on Tuesday.
Several Fed officials have adopted a more cautious tone, underpining the Greenback. Boston Fed President Susan Collins said that the current monetary policy is “in the right place,” while Dallas Fed President Lorie Logan noted that the US central bank should hold the interest rates “for a time” to evaluate their economic impact. The latest Fed minutes from October 2025 also suggested that many policymakers leaned against a December cut.
However, New York Fed President John Williams stated on Friday that the Fed can still reduce the interest rates “in the near term” without putting its inflation goal at risk. This, in turn, could weigh on the USD against the JPY. Traders will take more cues from the mixed economic signals and the delayed release of key inflation data.
Furthermore, the upside for the pair might be limited as Japanese officials stepped up verbal intervention to stem the domestic currency’s weakness. Japanese Finance Minister Satsuki Katayama said on Friday that intervention was a possibility to deal with excessively volatile and speculative moves.
The Bank of Japan (BoJ) has kept rates steady at 0.5% since January. Nonetheless, BoJ Governor Kazuo Ueda has dropped strong hints of action in December or January next year. A Reuters poll showed last week that a narrow majority of economists expect the Japanese central bank to raise rates to 0.75% in December, while many market players previously anticipated a hike in either December or January.
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.
