Japanese Yen rises on Katayama's strong intervention warning, safe-haven flows
- The Japanese Yen scales higher against a weaker USD for the second straight day.
- Intervention fears and BoJ rate hike bets benefit the JPY amid geopolitical risks.
- Dovish Fed expectations undermine the USD and also exert pressure on USD/JPY.
The Japanese Yen (JPY) remains on the front foot against a broadly weaker US Dollar (USD) for the second consecutive day on Tuesday and seems poised to appreciate further. Japan's Finance Minister Satsuki Katayama's stronger intervention language turns out to be a key factor that provides a goodish lift to the JPY amid the year-end thin liquidity. Moreover, rising geopolitical tensions contribute to driving safe-haven flows toward the JPY.
The aforementioned factors, to a larger extent, offset concerns about Japan's worsening fiscal conditions and a positive risk tone, which does little to dent demand for the safe-haven JPY. The USD, on the other hand, drops to a one-week low in the wake of US Treasury Secretary Scott Bessent's comments on Monday. This contributes to the USD/JPY pair's slide below mid-156.00s during the Asian session and backs the case for a further depreciating move.
Japanese Yen draws support from intervention warning and BoJ’s hawkish outlook
- Japan’s Finance Minister Satsuki Katayama, in her strongest warning yet, said that authorities have a free hand to take bold action against speculative moves that are not aligned with economic fundamentals. This comes after Atsushi Mimura, Japan’s top foreign exchange official, warned on Monday of appropriate action against an excessive decline in the Japanese Yen.
- Meanwhile, an escalation of tensions between the United States and Venezuela, along with the protracted Russia-Ukraine war and renewed Israel-Iran conflict, keeps the geopolitical risks in play. This further drives safe-haven flows toward the JPY and contributes to its relative outperformance against its American counterpart for the second consecutive day on Tuesday.
- The yield on the benchmark 10-year Japanese government bond touched a 26-year high amid firming expectations for further rate increases by the Bank of Japan after the central bank raised its rate to the highest in three decades last Friday.
- In fact, BoJ Governor Kazuo Ueda reiterated during the post-meeting press conference to seek further rate hikes if the economy and prices develop in line with the bank’s projections, saying the likelihood of achieving its outlook is increasing.
- In contrast, traders have been pricing in a greater chance of two more interest rate cuts by the US Federal Reserve in 2026. This, in turn, exerts downward pressure on the US Dollar and contributes to the offered tone surrounding the USD/JPY pair.
- US Treasury Secretary Scott Bessent floated the idea that the new Fed chair could scrap the dot plot and also change the central bank's inflation framework and communications. This adds to uncertainty around Fed credibility and weighs on the USD.
- Traders now look to Tuesday's US economic data – the delayed release of the Q3 GDP report and Durable Goods Orders – for a short-term impetus. The focus will then shift to the Tokyo CPI on Friday, which would drive the JPY in the near term.
USD/JPY technical setup backs the case for a further intraday depreciating move
This week's failure near the 158.00 neighborhood constitutes the formation of a bearish double-top pattern. Moreover, an intraday breakdown below the 38.2% Fibonacci retracement level of last week's move higher favors the USD/JPY bears and backs the case for further losses. Short-term moving averages have flattened after the recent setback, tempering upside traction.
The Moving Average Convergence Divergence (MACD) line slips below the signal line with both hovering around the zero mark, and the histogram turns negative, suggesting fading bullish momentum. The RSI sits at 47.40 (neutral) after retreating from overbought. Measured from the 154.39 low to the 157.71 high, the 50% retracement at 156.05 offers nearby support. A hold above the latter could keep the pullback contained.
Moving averages would need to reassert a positive slope to restore bullish momentum, otherwise the pair risks further consolidation. Should weakness extend, the MACD’s negative histogram would likely widen, and the RSI could slip toward 40, reinforcing a softer tone. Measured from the 154.39 low to the 157.71 high, a break under the 50% retracement at 156.05 would expose the 61.8% retracement at 155.66. Conversely, a recovery through 156.44 could open room toward the 23.6% retracement at 156.93.
(The technical analysis of this story was written with the help of an AI tool)
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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