USD/JPY declines to near 157.00 as Japan warns against sharp currency moves
- USD/JPY weakens to near 157.00 in Monday’s early Asian session.
- A Japanese official warned of deep concern over the Japanese Yen’s weakness.
- Economists expect US Q3 GDP growth to moderate to around 3.2%.
The USD/JPY pair attracts some sellers to around 157.00 during the early Asian session on Tuesday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) after Japanese officials warned against "one-sided and sharp" currency moves, raising fears of intervention.
Japan’s top foreign exchange official, Atsushi Mimura, said on Monday that recent foreign exchange moves were one-sided and sharp. Mimura added that he is concerned about the foreign exchange move and that the government will take appropriate action against excessive actions. Some verbal intervention from Japanese authorities could provide some support to the JPY and act as a headwind for the pair.
Markets expect the US Federal Reserve (Fed) to continue cutting interest rates in 2026 due to softer-than-expected US inflation and a slight rise in the Unemployment Rate. Financial markets are pricing in nearly a 21.0% odds the Fed will cut interest rates at its next meeting in January, after it reduced them by a quarter-point at each of its last three meetings, according to the CME FedWatch tool.
Traders will take more cues from the preliminary reading of the US Gross Domestic Product (GDP) for the third quarter (Q3) later on Tuesday. The US economy is estimated to have grown at an annual rate of 3.2% in Q3. It would be a slowdown from the 3.8% growth in Q2. If the GDP report shows a stronger-than-expected outcome, this could lift the Greenback against the Japanese Yen. Also, the US Durable Goods Orders, Industrial Production, and ADP employment weekly reports will be released on the same day.
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.
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