Japanese Yen eases from one-week top vs. USD; bullish potential seems intact
- Japanese Yen attracts follow-through buying amid intervention fears and BoJ rate hike bets.
- Geopolitical uncertainties and renewed trade war concerns also benefit the safe-haven JPY.
- The emergence of fresh USD selling exerts additional downward pressure on the USD/JPY pair.
The Japanese Yen (JPY) scales higher against a broadly weaker US Dollar (USD) for the second consecutive day on Monday and climbs to over a one-week high during the Asian session. Japan's Finance Minister Satsuki Katayama threatened bold action on Friday and warned of a possible intervention to counter weakness in the domestic currency, which, in turn, is seen as underpinning the JPY. Furthermore, prospects for an early interest rate hike by the Bank of Japan (BoJ) turn out to be another factor benefiting the JPY.
Meanwhile, US President Donald Trump vowed on Saturday to impose tariffs on eight European countries that have opposed his plan to take Greenland, reigniting trade war concerns. This comes on top of persistent geopolitical uncertainties and tempers investors' appetite for riskier assets, providing an additional boost to the safe-haven JPY. The USD, on the other hand, retreats from its highest level since December 9 and contributes to the USD/JPY pair's retracement slide from the 18-month top, touched last Wednesday.
Japanese Yen retains bullish bias amid warnings of government intervention and hawkish BoJ talks
- Japan’s Finance Minister Satsuki Katayama said on Friday that all options, including a direct and coordinated intervention with the US, are being considered to address the recent weakness in the Japanese Yen.
- A Reuters report, citing sources, suggests that some policymakers inside the Bank of Japan see scope to raise interest rates sooner than markets currently expect, as early as April, further lending support to the JPY.
- US President Donald Trump threatened to slap a 10% tariff on goods from eight European countries starting from February 1, until the US is allowed to buy Greenland, triggering a fresh wave of the risk-aversion trade.
- European Union ambassadors reached a broad agreement on Sunday to intensify efforts to dissuade Trump from imposing levies on allies, while also preparing retaliatory measures should the duties go ahead.
- Moreover, geopolitical risks stemming from the protracted Russia-Ukraine war and lingering worries about a possible US military strike against Iran benefit the JPY's safe-haven status at the start of a new week.
- The US Dollar attracts heavy selling as fresh trade war fears trigger a crisis of confidence in US assets, which offsets reduced bets for two more interest rate cuts by the US Federal Reserve by the end of this year.
- Reports suggest that Japan's Prime Minister Sanae Takaichi plans to dissolve parliament and call a snap parliamentary election in the first half of February to seek public backing for her fiscally expansionist policies.
- With Takaichi's popularity running high, a win would bolster her coalition government’s parliamentary majority and cement her authority to pursue her spending plans, which warrants caution for the JPY bulls.
- Traders might also opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index on Thursday and the crucial BoJ monetary policy decision on Friday before placing fresh directional bets.
USD/JPY might struggle to capitalize on intraday recovery from the 61.8% Fibo. level support
The USD/JPY pair finds decent support near the 61.8% Fibonacci retracement level of the recent move up from the monthly peak. A subsequent strength beyond the 50% retracement level, around the 157.80 area, could pave the way for further gains, though a stronger recovery would need additional momentum confirmation.
The Moving Average Convergence Divergence (MACD) hovers just below the zero line as readings firm toward -0.01, suggesting fading bearish pressure. The Relative Strength Index (RSI) prints 43 (neutral-bearish), stabilizing after an earlier oversold dip.
Meanwhile, the USD/JPY pair trades below the flattening 100-hour Simple Moving Average (SMA), around the 158.55 region, which should cap rebounds. A close back above this average would tilt the near-term tone higher.
(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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