Japanese Yen ticks up from 160.00 as PM Takaichi warns of intervention
- USD/JPY pulls back from two-week highs above the key 160.00 level but remains steady above 159.80.
- Japanese Yen's weakness has prompted Prime Minister Takaichi to launch a clear intervention warning.
- Surging US yields and dovish BoJ comments have hammered the Yen this week.
The Japanese Yen (JPY) hesitates a few pips away from the key 160.00 level against the US Dollar (USD) on Friday, weighed by a strong rebound in US Treasury yields, which has prompted Japanese Prime Minister Sanae Takaichi to launch an intervention warning earlier in the day.
The USD/JPY pair accelerated its decline this week, as Federal Reserve (Fed) speakers opened the door for a jumbo rate hike in December, as US inflation data released on Tuesday confirmed that price pressures keep escalating well above the 2% bank target for price stability.
Fed officials bring a 50-basis-point hike to the table
Before that, Fed Governor Christopher Waller affirmed that with elevated inflation, “hiking only 25 basis points would put our credibility at risk". A few days later, Dallas Fed President Lorie Logan shared that view, assuring that “the FOMC needs to implement at least two more 25-basis-point rate increases.”
The CME’S FedWatch tool shows that markets are now pricing a 13.3% chance of a half-point hike at the December 9 meeting, compared to 0% last week. This has boosted the yield on the two-year Government bond by 35 basis points this week and the benchmark 10-year yield by 25 basis points, back above the 5% level.
US Treasury yields’ rally has boosted the US Dollar across the board, crushing the Japanese Yen, which has also been hit by dovish comments by Bank of Japan (BoJ) official Taichiro Asada, who warned on Thursday about the economic risks of raising borrowing costs too fast
Against this background, Japanese Prime Minister Sanae Takaichi said earlier on Friday that Tokyo authorities are “closely monitoring markets” and that the government “will strive to preserve orderly forex markets,” a warning that the Ministry of Finance is ready to intervene to support the Yen. Takaichi also said that she is in contact with US financial authorities, suggesting the possibility of a coordinated action like the one that boosted the JPY in late July.
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.
