Japanese Yen declines amid intervention risks
- USD/JPY trades with mild gains near 157.40 in Tuesday’s early Asian session.
- Japan’s Katayama agreed with Bessent to beef up cooperation when asked about phone talks on September 25.
- Markets have priced in nearly a 70.3% chance of a 25 bps rate hike from the Fed at the October meeting.
The USD/JPY pair posts modest gains around 157.40 during the Asian trading hours on Tuesday. Traders remain on high alert for currency intervention after US Treasury Secretary Scott Bessent and Japan's Finance Minister Satsuki Katayama reaffirmed that the two countries intend to strengthen cooperation to address Japanese Yen (JPY) weakness.
Katayama said on Tuesday that she believes that undervalued Japanese Yen is problematic, while saying that she agreed with Bessent to beef up cooperation when asked about phone talks last Friday. She added that officials will continue close communications with US Treasury to ensure orderly foreign exchange markets.
Japan's top currency diplomat Atsushi Mimura stated on Monday that markets should take at face value the "very clear" message Tokyo and Washington have about their concerns about JPY weakness.
"Japanese officials can't have it both ways: they can't have this war in Iran that is driving up oil prices and US yields and then try to cap dollar-yen. In my work, I see the dollar-yen being driven by rising US interest rates. I think that's the sort of tug of war between verbal intervention by Japanese officials claiming US support and rising US yields," said Marc Chandler, chief market strategist at Bannockburn Forex.
On the US’s front, hawkish signals from the US Federal Reserve (Fed) policymakers provide some support to the Greenback. Markets are putting a 70.3% odds of a quarter-point rate hike from the Fed at the October meeting, according to the CME's FedWatch tool, after the central bank raised its interest rate at the September meeting. Traders are almost fully pricing in four quarter-point hikes over the next 12 months.
Yen softens despite BoJ rate hike as USD/JPY extends gains
Analysts at Rabobank highlight that the Bank of Japan’s latest policy move has failed to arrest currency weakness, noting that “the Bank of Japan announced its decision to hike the overnight policy rate by 25bp to 1.25%, but JPY has continued its weakening trend with USD/JPY up 2.82% from recent lows to 157.26.” This underscores that, despite tighter policy settings, the Yen remains under sustained downside pressure against the Dollar.
Technical Analysis: USD/JPY retains a negative tone below the 100-day SMA
In the daily chart, USD/JPY holds below the 100-day simple moving average (SMA) and the upper Bollinger Band, which keeps the broader tone capped despite the recent rebound off July’s lows. Price sits above the Bollinger middle band at 156.16, while the 14-period Relative Strength Index around 50 suggests neutral momentum after recovering from oversold conditions, hinting at consolidation within a still bearish, topside-limited backdrop.
On the downside, initial support emerges at the Bollinger middle band at 156.15, ahead of the lower Bollinger Band near 152.85, where a deeper slide would meet more substantial demand. On the topside, immediate resistance is located at the upper Bollinger Band around 159.50, followed by the 100-day SMA at 159.55, and buyers would need to decisively reclaim this clustered barrier to shift the near-term bias away from the current bearish containment.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.