Japanese Yen nudges lower despite a hawkish BoJ, intervention warnings

USD/JPY edges up to the 157.70 area from Friday's lows below 157.00.
The minutes of September's BoJ meeting revealed that some policymakers called for faster rate hikes.
Strong US data, hot inflation and Fed tightening hopes are keeping the US Dollar buoyed.

The Japanese Yen (JPY) is trimming gains from Friday’s rebound against the US Dollar (USD) on Monday. The hawkish minutes by the Bank of Japan (BoJ) and growing signals that the US and Japan might launch a new joint intervention have failed to spook Yen bears, who are pushing the USD/JPY pair to levels towards the 158.00 level.

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The minutes of the BoJ’s monetary policy meeting, released earlier on Monday, revealed that some policymakers advocated for faster interest rate increases in September, amid growing concerns about the mounting inflationary pressures. This has fed hopes that the bank will keep tightening its monetary policy over the coming months.

The BoJ raised its benchmark interest rate by 25 basis points to a 31-year high of 1.25%, but two policymakers voted to leave it on hold, which cast doubt about the scope of the hawkish cycle and disappointed investors. The Yen has depreciated more than 1.5% against the USD ever since.

US authorities show concern about Yen weakness

The Yen pared some losses on Friday as Japanese Finance Minister Satsuki Katayama affirmed that US President Donald Trump had expressed his concern about Yen weakness in a summit with Prime Minister Sanae Takaichi on the sidelines of the United Nations General Assembly last week.

Takaichi confirmed those coments later in the day, while Katayama added that she held a phone call with the US Secretary of State, Scott Bessent, in which they reaffirmed their commitment against excess volatility and disorderly moves on the Yen. This is a rather explicit warning of another joint intervention like the one that sent the Yen surging on July 31.

The fundamental background, however, remains USD-supportive. A rift of strong US data and hot inflationary pressures has boosted US Treasury yields to multi-decade highs, prompting investors to practically fully price in at least another interest rate hike by the Federal Reserve (Fed) before year-end.

Investors will be attentive to a slew of US macroeconomic indicators to confirm these views later this week, with the US Personal Consumption Expenditures (PCE) Price Index on Wednesday and September’s Nonfarm Payrolls (NFP) report on Friday likely to raise particular interest.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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.

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