During Tuesday’s Asian session, the USD/JPY pair remains stable near 158.15. The pair remains steady as an influx of funds into the secure haven offsets speculation that Prime Minister Sanae Takaichi may soon call early elections. Traders are waiting for the weekly ADP report on Tuesday for fresh momentum.
US President Donald Trump said on Saturday that from February 1 he would impose an additional 10% import tariff on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and the United Kingdom (UK) until the United States (US) can buy Greenland. The headline raises fears of a major trade war as Europe prepares to push back after Trump threatened to escalate tariffs on allies, which could strengthen safe-haven currencies such as the Japanese yen (JPY) against the US dollar.
Traders will be closely monitoring the possibility of Takaichi calling early elections next month to consolidate power. Its perceived preference for expansionary fiscal policy and large-scale stimulus raises concerns about Japan’s public finances and could further weaken the Japanese yen and have a positive impact on the pair.
On Friday, the Bank of Japan (BoJ) decision on interest rates will be in focus. Japan’s central bank is expected to leave its key interest rate unchanged at around 0.75%. At its last meeting in December, it raised the interest rate by 25 basis points (bps).
Japanese Yen FAQs
The Japanese yen (JPY) is one of the most frequently traded currencies in the world. Its value is largely determined by, among other things, the performance of the Japanese economy, but in particular the policy of the Bank of Japan, the difference between the yields of Japanese and American bonds, and the risk sentiment of investors.
One of the tasks of the Bank of Japan is currency control, so its movements are crucial for the yen. The BOJ has at times intervened directly in currency markets, generally to depress the value of the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The BOJ’s ultra-loose monetary policy in 2013–2024 resulted in the depreciation of the yen against other major currencies due to the growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual withdrawal from this ultra-loose policy has provided some support to the yen.
Over the past decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to widening policy divergences with other central banks, particularly the US Federal Reserve. This supported a widening spread between US and Japanese 10-year bonds, which supported the US dollar against the Japanese yen. The BoJ’s decision to phase out ultra-loose policy in 2024, combined with interest rate cuts at other major central banks, narrows the gap.
The Japanese yen is often viewed as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency due to its supposed reliability and stability. The turbulent times are likely to strengthen the value of the yen relative to other currencies considered riskier to invest in.
