Japanese Yen declines due to stronger US Dollar, safe-haven outflows
- USD/JPY recovers as the Fed maintains rates, with two dissenting votes favoring a 25-bps hike.
- Strong AI sector earnings and Fed Chair Warsh's firm inflation stance support market sentiment.
- Safe-haven outflows amid rising bond yields weigh on the Japanese Yen despite upcoming BoJ policy decisions.
USD/JPY recovers its recent losses from the previous day, trading around 158.00 during Asian hours on Thursday. The pair gains ground as the US Dollar (USD) bounces back from its previous day's losses. The Federal Reserve (Fed) recently opted to keep interest rates unchanged, even as two policymakers dissented in favor of a 25-basis-point increase.
In subsequent remarks, Fed Chair Kevin Warsh reaffirmed the Federal Open Market Committee's commitment to delivering price stability and achieving its 2% inflation target, emphasizing that the economy remains strong. He also outlined future monetary policy schedules, noting that the Fed will hold eight meetings next year, including one without a vote, and that he expects six policy-setting meetings in 2028.
Meanwhile, the Japanese Yen (JPY) also faces pressure from safe-haven outflows. This shift is driven by a decline in government bonds alongside rising market sentiment surrounding artificial intelligence. Supporting the positive AI sector outlook, South Korean chipmaker SK Hynix reported strong third-quarter results and announced increased shareholder returns fueled by AI-driven profits.
Traders are turning their focus to the Bank of Japan’s upcoming policy meeting due on Friday. While interest rates are widely expected to remain unchanged, officials may signal a potential December rate hike in response to persistent inflationary pressures.
Strategists at Rabobank highlight the improving performance of the Japanese Yen within the G10 complex, noting that “the JPY is the second best performing G10 currency in the half year to date after the NOK” and “the fourth best performing G10 currency in the year to date.” They caution, however, that “significant amounts of FX intervention in favour of the JPY have been a notable factor in supporting it this year,” underscoring the extent to which official action has contributed to the currency’s recent resilience.
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.