Japanese Yen gains amid intervention watch as JGB 10-year yield hits 30-year highs
- USD/JPY falls as the Japanese Yen gains support, with markets on high alert for Japanese intervention.
- Finance Minister Satsuki Katayama affirmed Thursday that the joint US-Japan foreign exchange principles remain in effect.
- US 30-year Treasury yields hit 5.502%, the highest since 2004, while 10-year yields reached 5.225%, the highest since 2007.
USD/JPY halts its five-day winning streak, trading around 158.10 during Asian hours on Friday. The currency pair depreciates as the Japanese Yen (JPY) gathers support. Market participants are remaining on high alert, anticipating potential market intervention by Japanese authorities.
Reinforcing these expectations, Japanese Finance Minister Satsuki Katayama said on Thursday that the foreign exchange principles established after the coordinated intervention between Japan and the United States remain in effect.
Japan's 10-year government bond (JGB) yield retreated after briefly hitting a 30-year high of 3.11% earlier in the session. The initial spike was driven by a sharp overnight surge in US Treasury yields.
On Thursday, the 30-year US Treasury yield surged to a high of 5.502%, its highest mark since June 2004, while the benchmark 10-year Treasury yield rose to 5.225%, touching a level not recorded since June 2007.
However, the USD/JPY pair may rebound as the US Dollar (USD) strengthens, driven primarily by hawkish signals from Federal Reserve officials. Elevated oil prices and robust US economic data have stoked inflation concerns, reinforcing market expectations that the Fed may tighten its monetary policy even further.
Reflecting this shift, the CME FedWatch Tool indicates that the likelihood of an October benchmark rate hike has jumped to nearly 67.5%, marking a significant increase from 55.4% a week prior and just 11% a month ago.
Dollar seen underperforming as Fed independence concerns grow
Analysts at Commerzbank argue that the Dollar’s support is likely to prove fragile as policy expectations shift. They warn that “the dollar is likely to face pressure not only from a downward revision of US rate expectations, but also from renewed concerns that Fed independence is being undermined by the White House.” In their view, this combination of softer rate expectations and political noise around the Fed means “we therefore expect the dollar to come under greater pressure than the euro in the end, despite likely downward revisions to rate expectations on both sides of the Atlantic.”
Japanese Yen FAQs
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.
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