USD/JPY struggles to extend recovery above 146.40 due to Yen’s safe-haven appeal

• USD/JPY faces pressure after recovering to near 146.40 amid firm Yen’s safe-haven appeal.

• Fears of global slowdown and a higher-than-expected BoJ rate hike have strengthened the Japanese Yen.

• The Fed is see reducing its key rates by 50 bps in September.

The USD/JPY pair faces pressure in an attempt to extend recovery above the intraday resistance of 146.40 in Tuesday’s European session. The asset struggles to extend its recovery due to the firm appeal of the Japanese Yen (JPY) as a safe haven.

Earlier, the major discovered buying interest after a five-day losing spell as the US Dollar (USD) bounced back from a fresh six-month low. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to near 103.00. Meanwhile, the Japanese Yen has also posted a fresh seven-month low at 141.70 against the US Dollar.

The appeal of the Yen as a safe haven has significantly improved due to fears of a global slowdown. Fears of a potential United States (US) slowdown have deepened as its labor market demand has slowed significantly. Also, the US Unemployment Rate has risen to 4.3%, which is the highest since November 2021.

Potential US economic vulnerability has also prompted expectations of bulk rate cuts by the Federal Reserve (Fed). According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that traders see a 50-basis point (bp) cut in interest rates in September as imminent.

Meanwhile, the Bank of Japan's (BoJ) larger-than-expected rate hike has also improved the Yen’s outlook. Last week, the BoJ raised its key interest rates by 15 bps and adjusted them to a range of 0.15%- 0.25%. Furthermore, the central bank announced tapering of monthly purchases of Japanese government bonds (JGBs) to ¥3 trillion, with effect from the first quarter of 2026.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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 current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

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 supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

How does broader risk sentiment impact the Japanese Yen?

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.