Japanese Yen edges higher as intervention fears return
- USD/JPY posts modest losses around 162.35 in Wednesday’s early Asian session.
- Weaker-than-expected US jobs data prompted traders to reduce expectations for Fed rate hikes this year.
- Japanese authorities have warned they are prepared to intervene in currency markets if excessive volatility threatens financial stability.
The USD/JPY pair trades with mild losses near 162.35 during the early Asian session on Wednesday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) as traders continue to watch for signs of possible intervention by Japanese authorities to support the currency. The Federal Reserve’s (Fed) June meeting minutes will be released later on Wednesday.
Expectations for further US rate increases have eased following weaker-than-expected Nonfarm Payrolls (NFP) data, weighing on the Greenback. Federal Reserve (Fed) Bank of New York President John Williams said on Tuesday that he has grown a little less worried about the state of price pressures in the economy due to the recent retreat in energy prices, which he expects to continue.
Meanwhile, Fed Governor Christopher Waller stated on Monday that forward guidance can be a valuable tool under the right circumstances but can also be a problem when used improperly.
Traders will keep an eye on the Fed Minutes, the first under new Chairman Kevin Warsh, on Wednesday for more clues about the US interest rate outlook.
Markets are now pricing in about 26 basis points (bps) worth of Fed rate hikes by December, down from about 38 bps a week ago, according to LSEG data.
Traders are on high alert for possible intervention by Japanese authorities, which might cap the upside for the pair. Finance Minister Satsuki Katayama reiterated that authorities stand ready to intervene at any time to support the currency. Katayama further stated that Japan and the US remain in close communication on foreign exchange policy.
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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