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17 Jan 2025
USD/JPY bounces back from four-week low of 156.00 as US Dollar gains ground
- USD/JPY rebounds from 156.00 as the upside move in the Japanese Yen pause after a two-day runup.
- US Trump is expected to announce policies on tariffs and taxes sooner.
- The BoJ is confirmed to discuss raising interest rates in the policy meeting next week.
The USD/JPY pair discovers buying interest after posting a fresh four-week low of 156.00 in Friday’s European session. The asset rebounds as the US Dollar (USD) gains ground, with investors turning cautious ahead of United States (US) President-elect Donald Trump’s inauguration on Monday.
Investors expect that Trump will announce tariff and taxation policies right after returning to the White House. Market experts believe that these policies will be pro-growth and inflationary for the US economy, a scenario that will allow the Federal Reserve (Fed) to keep interest rates at their current levels.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, wobbles above the key support of 109.00.
This week, the US Dollar remains broadly under pressure as traders raised Federal Reserve (Fed) dovish bets after the release of the US Consumer Price Index (CPI) data for December, which showed that the annual core inflation surprisingly decelerated to 3.2% from the former reading of 3.3%, which is the lowest reading in over three years.
On the Tokyo front, the Japanese Yen (JPY) performs weakly on Friday after a strong two-day upside move even though Nikkei has reported that a majority of Bank of Japan (BoJ) officials are expected to raise interest rates at the policy meeting on January 23-24. This week, BoJ Governor Kazuo Ueda confirmed that the central bank will discuss raising interest rates in the policy meeting next week. Ueda said that the central bank is currently “analyzing data thoroughly” and will compile the findings in the quarterly outlook report, and based on that, the bank will discuss whether to “raise interest rates at next week's policy meeting.”
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.