USD/JPY softens below 157.50 amid holiday season in Japan
- USD/JPY weakens to around 157.30 in Friday’s Asian session, losing 0.21% on the day.
- Japanese authorities warned about intervention against excessive FX moves.
- Fed signalled a slower pace of rate cuts, which might lift the USD in the near term.
The USD/JPY pair edges lower to near 157.30 during the Asian trading hours on Friday. The verbal intervention from the Japanese authorities provides some support to the Japanese Yen (JPY). However, the uncertainty surrounding the Bank of Japan's (BoJ) policy outlook might cap the JPY’s upside. Markets in Japan are closed for the rest of the week. Traders brace for the US ISM Manufacturing PMI for December, which is due later on Friday.
Traders will closely monitor any potential foreign exchange (FX) intervention by Japanese officials to prevent the JPY from depreciating. Japan Finance Minister Katsunobu Kato last week reiterated concerns over a sliding yen, repeating his warning to take suitable measures against excessive foreign exchange movements.
The BOJ will publish its quarterly report on regional economic conditions next week, which will most likely include an assessment of whether wage hikes are spreading throughout the nation. This report might provide some insight into the BoJ's next policy decision on January 24.
On the other hand, the speculation of fewer Federal Reserve (Fed) interest rate cuts in 2025 and optimism around the US economy could lift the US Dollar (USD) broadly. The US central bank indicated that it will be more cautious in rate reductions as inflation remains stubbornly above its 2% annual target and the economy remains strong. Furthermore, policies by the US. president-elect Donald Trump are also expected to boost growth and potentially trigger inflation, which might slow the pace of Fed rate cuts.
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.