Japanese Yen gains on intervention fears, political uncertainty caps further upside
- Japanese Yen outperforms the USD amid fears of a joint US-Japan intervention in the market.
- Domestic political uncertainty ahead of the snap election on February 8 caps gains for the JPY.
- The USD preserves its recent strong recovery gains and helps limit further losses for USD/JPY.
The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Tuesday and, for now, seems to have snapped a two-day losing streak to over a one-week trough, touched the previous day. The latest comments from Japan’s Finance Minister Satsuki Katayama keep the door open for a joint US-Japan intervention to stem weakness in the JPY and act as a tailwind amid hawkish Bank of Japan (BoJ) expectations. The US Dollar (USD), on the other hand, is seen consolidating its recent recovery gains and acts as a headwind for the USD/JPY pair.
However, domestic political uncertainty ahead of the February 8 snap election and fiscal concerns on the back of Prime Minister Sanae Takaichi's reflationary policies might cap gains for the JPY. Moreover, a generally positive tone around the equity markets warrants some caution before placing aggressive bullish bets around the safe-haven JPY. Meanwhile, the nomination of Kevin Warsh as the next Federal Reserve (Fed) chair could support the USD and contribute to limiting losses for the USD/JPY pair ahead of the US JOLTS Job Openings, due for release later today.
Japanese Yen draws some support from intervention speculation, though bulls seem reluctant
- Japan’s Finance Minister Satsuki Katayama said on Tuesday that she will continue to closely coordinate with US authorities as needed, based on a joint Japan and US statement issued in September last year, and respond appropriately.
- Furthermore, Katayama defended Prime Minister Sanae Takaichi's comments about the benefits of a weaker JPY on Monday and said that the premier was speaking in general terms about the impact of a weak JPY on the economy.
- The Summary of Opinions from the Bank of Japan's January meeting showed on Monday that policymakers debated mounting price pressures from a weak JPY, highlighting a hawkish view among the central bank's board members.
- Japan's PM Sanae Takaichi has pledged to suspend the consumption tax on food for two years in the event that her Liberal Democratic Party wins the snap election on February 8, raising concerns about the country's fiscal sustainability.
- US President Donald Trump announced on Monday that the US and India have reached a trade deal and will immediately move to lower tariffs on each other’s goods, boosting investors' confidence and capping the safe-haven JPY.
- Adding to this, signs of de-escalation of tensions between the US and Iran, over the latter's nuclear program, lower the risk premium and remain supportive of a positive risk tone, which could further undermine demand for the JPY.
- Trump nominated former Kevin Warsh to succeed Jerome Powell as Federal Reserve Chair in May, pending Senate approval. Warsh’s background as a hawk suggests that he would remain vigilant if inflation expectations begin to rise.
- The Institute for Supply Management's survey showed on Monday the US factory activity grew for the first time in a year and the Manufacturing PMI rose to 52.6 in January, marking a significant recovery from 47.9 in the previous month.
- This, in turn, assists the US Dollar to preserve its recent strong recovery gains from a four-year low, touched last week, and should contribute to limiting any meaningful decline for the USD/JPY pair, warranting caution for bears.
- Traders now look forward to the US JOLTS Job Openings data for some impetus later during the North American session. The mixed fundamental backdrop, however, warrants caution before placing fresh USD/JPY directional bets.
USD/JPY needs to strengthen beyond 50% retracement level to back the case for any further gains
Spot prices struggle to make it through the 50% retracement level of the recent 159.23-152.10 downfall. A sustained strength beyond could lift USD/JPY pair to the 156.45 confluence – comprising the 61.8% Fibonacci retracement level and the 200-period Simple Moving Average (SMA) on the 4-hour chart. The latter slopes lower near 156.50, keeping the broader tone heavy. The USD/JPY pair trades beneath this long-term gauge, and recovery attempts would face supply on tests of it.
A decisive break above that band could unlock further recovery, while failure to clear it would keep sellers in control and risk a pullback within the prevailing bearish structure. The Moving Average Convergence Divergence (MACD) line remains in positive territory and above its Signal line, though momentum has cooled as the histogram narrows. The Relative Strength Index sits at 61, firm above the 50 midline without reaching overbought. Absent a sustained move above the 200-period SMA, rebounds would remain corrective.
(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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