In early trading hours in Asia on Thursday, the USD/JPY pair is consistently close to its multi-decade high of around 161.75. The pair’s potential growth may be constrained amid intense speculation about imminent currency intervention by the Japanese authorities.
Japanese Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent agreed to take steps on currencies if needed. This situation has sparked intense market speculation about a joint US-Japan currency intervention, supporting the Japanese yen (JPY) and hampering the pair’s exchange rate. Additionally, Japan’s Chief Cabinet Secretary Minoru Kihara said on Tuesday that he would take appropriate action against currency movements if necessary.
On the other hand, hawkish signals from the US Federal Reserve (Fed) may augment the dollar rate. At its June policy meeting, the Fed decided to keep its benchmark interest rate steady at between 3.50% and 3.75%. Kevin Warsh, in his first news conference as chairman, said that “price stability” would be the Fed’s guiding principle.
According to CME’s FedWatch tool, markets are now pricing in a 34.2% chance of a 25 basis point (bp) hike at the July meeting, up from 8.5% a week ago and 66.4% in September, up from 29.1%.
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.
