Japanese Yen softens on BoJ's lack of hawkish guidance, potential intervention eyed
- USD/JPY edges higher to near 157.60 in Wednesday’s early Asian session.
- BoJ rate hike last week came with two dovish dissents, weighing on the Japanese Yen.
- Potential currency intervention from Japanese authorities might help limit the JPY’s losses.
The USD/JPY pair gathers strength to around 157.60 during the early Asian trading hours on Wednesday. The Japanese Yen (JPY) extends the decline due to a lack of explicitly hawkish guidance from the Bank of Japan (BoJ) after the rate hike last week. The preliminary reading of the Purchasing Managers’ Index (PMI) from the US will be published later on Wednesday.
Last week, the BoJ lifted its policy rate by 25 basis points (bps) to 1.25%, its highest level since 1995. However, the vote was 7-2 as board members Toichiro Asada and Ayano Sato dissented. Markets view the dissent from two policymakers as a warning that additional hikes may be harder to implement, weighing on the JPY.
When asked if back-to-back hikes or larger moves were possible, BoJ Governor Kazuo Ueda said the central bank wouldn’t rule out any particular policy options in advance of board meetings.
“Ueda’s press conference showed snippets of hawkishness, but they were insufficient to support the market’s aggressively hawkish expectations”, said Chidu Narayanan, chief APAC strategist at Wells Fargo.
Traders remain on high alert for currency intervention from Japanese authorities to prop up the Japanese Yen. The Nikkei newspaper reported last week that Japanese officials conducted rate checks. A rate check involves authorities asking banks for currency quotes to gauge market conditions, which traders view as a precursor to currency intervention.
Yen outlook steadies as BoJ signals greater willingness to tighten policy
Strategists at OCBC acknowledge that the BoJ’s recent “7-2 vote split in favour of a rate hike may remain a near-term headwind for the JPY,” with the divided board likely to temper immediate currency support. However, they stress that “the more important takeaway is that the BoJ appears increasingly willing to tighten policy at a faster pace.” In their view, this evolving stance “should ease concerns that the BoJ is falling behind the curve,” reinforcing expectations that a more proactive policy path will gradually underpin the Yen even if short-term volatility persists.
Collins flags higher inflation risks, reinforcing hawkish Fed bias
Fed's Collins delivered a notably more hawkish tone, with an FXS Speechtracker score of 8.1/10 compared to the established baseline of 6.6/10, underscoring stronger conviction behind recent policy moves. By explicitly supporting last week's rate hike and warning of an increased likelihood that inflation stays notably above 2%, Collins framed a policy stance that prioritizes a timely return to price stability now that the labor market appears on a better footing. The emphasis on a "somewhat more restrictive" federal funds rate signals a bias toward keeping rates elevated for longer, a message typically supportive of the Dollar and negative for risk-sensitive assets.
The FXS Fed Sentiment Index rose by 0.53 points to 150.49, reinforcing that the broader Fed communication backdrop remains firmly in hawkish territory well above the neutral 100 mark. In combination with the elevated FXS Speechtracker score, this move suggests that Fed messaging is increasingly aligned around the need for restrictive policy to durably return inflation to target, a configuration that should continue to underpin the Dollar against lower-yielding currencies.
Technical Analysis: USD/JPY
In the daily chart, USD/JPY holds in a broad range as it sits below the 100-day moving average (MA) yet above the 20-day Bollinger simple moving average (SMA) midline. This configuration suggests the pair is consolidating between trend resistance and near-term band support, while the Relative Strength Index (RSI) at 53.01 leans slightly to the bullish side without signaling overbought conditions.
On the topside, initial resistance is seen at the 100-day MA at 159.55, with the upper Bollinger band at 160.85 acting as the next cap if buyers regain traction. On the downside, immediate support emerges at the Bollinger SMA midline near 156.55, ahead of a deeper structural floor at the lower Bollinger band around 152.25, where a stronger corrective phase would likely pause.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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