Japanese Yen weakens below 158.50 on BoJ policy uncertainty, US CPI in focus
- USD/JPY gains ground to near 158.30 in Wednesday’s early Asian session.
- Japan's Takaichi faces fresh scrutiny over BoJ policy stance.
- Traders await the US inflation data later on Wednesday for fresh impetus.
The USD/JPY pair gathers strength to around 158.30 during the early Asian session on Wednesday. The Bank of Japan (BoJ) policy uncertainty weighs on the Japanese Yen (JPY) against the US Dollar. Traders brace for the release of key US inflation data later on Wednesday, which will likely determine the next major move.
Speculation that Japanese Prime Minister Sanae Takaich would pressure the BoJ to go slow on rate hikes heightened after a report that she had voiced reservations about additional tightening in a meeting with BoJ Governor Kazuo Ueda last month.
BoJ Governor Kazuo Ueda last week signaled a likely prolonged hold on interest rates due to the potential economic impact of the Middle East conflict. The Japanese Yen central bank is expected to maintain its policy rate at the policy meeting next week. Uncertainty about the BoJ's willingness to aggressively raise rates could drag the JPY lower against the US Dollar (USD).
The US February Consumer Price Index (CPI) inflation data will take center stage later in the day. The headline CPI is estimated to show an increase of 2.4% YoY in February, while the core CPI is expected to show a rise of 2.5% during the same period. Any signs of softer inflation in the US could undermine the USD in the near term.
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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