Japan’s Katayama: No major divergence on inflation outlook or policy; will coordinate with BoJ

Japan’s government and the Bank of Japan (BoJ) remain closely coordinated. Speaking on Wednesday, Japanese Finance Minister (FM) Satsuki Katayama said there was no major difference between them on the inflation outlook or policy.

Selected remarks

Government coordinating closely with BoJ, no major divergence on inflation outlook, policy.

Tax cut boosts demand and drives up prices.

Will ensure proactive, responsible fiscal policy enhances Japan's supply capacity, doesn't accelerate inflation.

0.10% gain in USD/JPY

USD/JPY is trading 0.10% higher on the day. The pair stands at 158.35 at the time of writing.

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Japanese Yen: Key Questions

The Japanese Yen’s Main Drivers

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

Bank of Japan Policy Shapes the Yen

Currency control forms part of the Bank of Japan’s mandate, making its actions an important influence on the Yen. On occasion, the BoJ has intervened directly in currency markets, usually to weaken the currency. Such intervention remains infrequent because of political concerns among Japan’s main trading partners. Between 2013 and 2024, the BoJ’s ultra-loose monetary policy weakened the Yen against its major peers as the policy gap with other leading central banks widened. The gradual withdrawal of that ultra-loose stance has more recently provided some support for the currency.

US-Japan Bond Yield Gap Influences the Yen

By maintaining ultra-loose monetary policy over the past decade, the BoJ increasingly diverged from other central banks, especially the US Federal Reserve. That divergence helped widen the yield gap between 10-year US and Japanese bonds, supporting the US Dollar against the Japanese Yen. The gap is now narrowing as the BoJ follows its 2024 decision to gradually withdraw ultra-loose policy while other major central banks cut interest rates.

Risk Sentiment Drives Safe-Haven Demand for the Yen

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