Japanese Yen remains under pressure as USD/JPY moves closer to intervention territory again
- USD/JPY moves closer toward the 160.00 mark, reviving fears of another Japanese intervention.
- Elevated Oil prices and wide interest rate differentials continue to weigh on the Japanese Yen.
- Japanese officials reiterate readiness to respond in the currency market if needed.
USD/JPY ticks higher on Tuesday, moving toward the 160.00 mark once again and raising the risk of another intervention by Japanese authorities. At the time of writing, the pair trades around 159.80.
The move higher in USD/JPY appears largely driven by speculation, as the US Dollar (USD) trades slightly lower against most major currencies amid cautious optimism surrounding a potential US-Iran peace deal, even after reports that Iran suspended negotiations with Washington.
US President Donald Trump told ABC News on Monday that he expects Washington and Tehran to reach an agreement within the next week to extend the ceasefire and reopen the Strait of Hormuz.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading consolidating losses above the 99.00 mark.
Is another Yen intervention getting closer?
With USD/JPY once again approaching the 160.00 level, traders are increasingly watching for signs of another intervention by Japanese authorities. Japan’s Finance Minister Satsuki Katayama said on Tuesday that authorities remain ready to respond in the currency market if needed. Katayama also said Japan is closely coordinating with the United States on foreign exchange moves.
The 160 area remains a key line in the sand where officials previously stepped into the market in 2024 and earlier this year to support the Yen.
Japan’s Ministry of Finance reportedly purchased a record ¥11.735 trillion worth of Yen between April 28 and May 27.
However, the intervention seen in late April proved short-lived. Ongoing tensions in the Middle East support demand for the US Dollar while pushing Oil prices sharply higher. Elevated Oil prices increase Japan’s energy import costs due to the country’s heavy reliance on imported fuel from the region.
Meanwhile, the Bank of Japan’s (BoJ) slow pace of policy normalization keeps the interest rate differential wide against other major central banks, which remains a key headwind for the Yen.
Recent inflation data has also dimmed expectations for another BoJ rate hike at the upcoming meeting later this month, while rising Oil-driven inflation risks increase the likelihood that other major central banks, particularly the Federal Reserve (Fed), may need to keep interest rates higher for longer.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.