USD/JPY eases below 159.00 as focus shifts to US Retail Sales, PPI data
- USD/JPY retreats from two-year highs at 159.45 amid a moderately softer US Dollar.
- News of a snap election in Japan has boosted the Takaichi Trade this week.
- US PPI and Retail Sales data, Fed speakers, and the US Supreme Court's rulings will grab the focus during the US session.
The Japanese Yen is trimming some losses on Wednesday as the US Dollar recovery falters. The pair has retreated from two-year highs at 159.45, returning to the mid-range of the 158.00s at the time of writing, with the market’s attention turning to the US Retail Sales and PPI data releases, ahead of speeches by a string of US Federal Reserve policymakers.
The Yen, however, remains one of the weakest performers among major currencies this week, amid growing rumours that the Japanese Prime Minister would be mulling dissolving the lower house next week to call snap elections in early February.
Markets are concerned that the election results might lead to stronger parliamentary support for Takaichi, endorsing her policies of large stimulus and low interest rates, thereby boosting the risk of a fiscal crisis. These fears have fuelled a new wave of the so-called “Takaichi trade,” which involves selling JPY and long-term Japanese Government Bonds (JGBs).
US Dollar appreciates on hopes of a hawkish Fed
The US Dollar Index is pulling back highs but maintains its bullish trend from late-December lows intact. The moderate inflation figures have failed to change the view that the Fed will keep rates unchanged in the next months, and investors await US PPI and Retail Sales data for further insight about the economic momentum.
Later on, a slew of Fed speakers will also take the stage during the American session. The focus will be on Governor Stephen Miran, Trump's latest pick for the Board, and a vocal dove. Besides him, Philadelphia Fed President Anna Paulson, Atlanta Fed President Raphael Bostic, Minneapolis Fed President Neel Kashkari, and New York Fed President John Williams will also meet the press on Wednesday.
Traders will keep an eye on the US Supreme Court, which is expected to deliver its verdict on several questions later on Wednesday and might rule on Trump’s trade tariffs.
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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