Japanese Yen slips as Fed hold exposes hawkish split

0.21% higher: USD/JPY reaches 158.28 after the Fed's rate announcement.
3.75%-4% rates retained by the Fed as two officials back tightening.
Rate hikes remain a possibility as US activity stays resilient and inflation persists.

USD/JPY is trading at 158.28. The pair is up 0.21%, with the Japanese Yen weakening against the US Dollar after the Federal Reserve left rates unchanged despite US inflation remaining well above its 2% target. Two officials dissented from the decision, favouring a quarter-percentage-point rate increase.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

158.50 in sight for USD/JPY as two Fed officials oppose rate hold amid persistent inflation

Rates remained at 3.75%-4% following Wednesday's Fed decision. The central bank recognised continued economic expansion and said domestic spending “has been resilient, that productivity growth is strong and that capital investment is robust,” while also highlighting strong productivity growth. On its employment mandate, the Fed stated: “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”

Although inflation remains elevated, the central bank opted to defer rate increases as it collects further information and evaluates the appropriate policy stance.

Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack cast the FOMC’s two dissenting votes.

USD/JPY – Daily Price Chart

Japanese Yen: Frequently Asked Questions

Which factors shape the Japanese Yen’s value?

Among the most actively traded currencies globally, the Japanese Yen (JPY) broadly reflects Japan’s economic performance. More specific influences include Bank of Japan policy, the gap between Japanese and US bond yields, and traders’ appetite for risk, alongside other factors.

Why do Bank of Japan decisions matter for the Japanese Yen?

Currency control forms part of the Bank of Japan’s mandate, making its actions important for the Yen. Direct intervention in foreign exchange markets has occasionally been used by the BoJ, usually to weaken the currency. Such action remains infrequent because of political concerns among Japan’s main trading partners. Between 2013 and 2024, the BoJ’s ultra-loose monetary stance drove a widening policy gap with other major central banks, causing the Yen to lose value against its main currency peers. The subsequent gradual withdrawal of that ultra-loose policy has provided some support for the Yen.

Why does the US-Japan bond yield gap affect the Japanese Yen?

By maintaining ultra-loose monetary policy over the last decade, the BoJ increasingly diverged from other central banks, especially the US Federal Reserve. The resulting widening in the yield gap between 10-year US and Japanese bonds benefited the US Dollar relative to the Japanese Yen. That gap is now narrowing as the BoJ’s 2024 decision to begin gradually withdrawing ultra-loose policy coincides with interest-rate reductions by other major central banks.

Why does the Japanese Yen respond to changes in risk appetite?

Investors often regard the Japanese Yen as a safe-haven asset. During periods of market stress, its perceived reliability and stability make them more inclined to place funds in the currency. As a result, turbulence is likely to lift the Yen against currencies considered riskier investments.