Japanese Yen edges higher on verbal warnings, traders await US ADP labour and PCE data
- USD/JPY declines to near 157.00 in Wednesday’s early Asian session.
- Fresh verbal warnings from authorities support the Japanese Yen.
- Hawkish remarks from the Fed officials might cap the downside for the pair.
The USD/JPY pair loses momentum to around 157.00 during the early Asian session on Wednesday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) amid intervention fears after US Treasury Secretary Scott Bessent and Japan's Finance Minister Satsuki Katayama reaffirmed that the two countries intend to strengthen cooperation to address Japanese Yen (JPY) weakness.
Katayama said on Tuesday that she believes that undervalued Yen is problematic, while saying that she agreed with Bessent to beef up cooperation when asked about phone talks last week. She added that officials will continue close communications with the US Treasury to ensure orderly foreign exchange markets.
Last week, Katayama said US President Donald Trump had raised concerns over the JPY during a meeting with Prime Minister Sanae Takaichi. Earlier this week, Japan's top currency diplomat Atsushi Mimura stated that markets should take at face value the "very clear" message Tokyo and Washington have about their concerns about FX depreciation.
The Japanese Yen gathers strength despite the disappointing domestic data. Industrial production fell 2.2% year-on-year in August, versus 4.0% prior.
However, hawkish signals from the Federal Reserve (Fed) officials might help limit the Greenback’s losses. Fed Governor Michael Barr repeated a warning that further rate increases will likely be needed to slow inflation. Last week, Cleveland Fed President Beth Hammack stated that inflation risks remain high and that restrictive monetary policy should be maintained.
Traders will keep an eye on the US ADP employment and Personal Consumption Expenditures (PCE) Price Index reports later in the day. Markets currently see a 47.1% probability of a Fed rate hike in October and a 92.5% odds of an increase in December, according to the CME's FedWatch Tool.
Yen outperforms as Japan officials reiterate FX warning
Analysts at Scotiabank highlight the Japanese Yen as a clear outlier in G10 FX, noting that it is “the only notable exception” to broader defensive trading. They point to “a clear late Asian-session surge” in JPY, which was “driven by FX-related comments from Japan’s Vice Minister for International Affairs, Atsushi Mimura,” after he “reminded market participants to heed last week’s warnings from both PM Takaichi and FinMin Katayama.” This renewed emphasis from senior Japanese officials has underpinned modest Yen gains and reinforced its relative strength on the crosses.
Goolsbee flags AI-driven overheating risks, reinforcing hawkish Fed tone
Fed's Goolsbee delivered a notably hawkish-leaning address, with a 7.1/10 FXS Speechtracker score modestly above the 6.7/10 historical average, underscoring heightened concern about persistent inflation and policy complacency. The warning that expectations of future AI-driven productivity gains create a “high danger of overheating now,” alongside comments about massive fiscal deficits as stimulus and the need to revisit the logic of looking through supply shocks, signals a readiness to prioritize inflation control over market comfort and a lower tolerance for staying above the inflation target. The emphasis on keeping an eye on productivity and securing clear evidence that inflation is coming back down suggests limited appetite for early rate cuts, a backdrop typically supportive of the Dollar and a headwind for risk-sensitive currencies.
The FXS Fed Sentiment Index rose by 1.01 points to 145.30, firmly in hawkish territory and consistent with the above-baseline FXS Speechtracker score. This elevated reading, far above the neutral 100 mark, confirms that Goolsbee's remarks are interpreted as reinforcing expectations of a relatively restrictive policy stance, with implications for Dollar strength and continued sensitivity in bond and equity markets to incoming inflation and productivity data.
Technical Analysis: USD/JPY keeps a bearish vibe under the 100-day SMA
In the daily chart, USD/JPY retains a mildly bearish near-term bias as spot holds beneath the 100-day simple moving average (SMA) and the upper Bollinger Band. The Relative Strength Index (14) around 48.8 hints at neutral momentum after the latest pullback.
On the topside, immediate resistance is located at the upper Bollinger Band around 159.20, followed by the 100-day SMA at 159.55, which together define a dense cap on recovery attempts. On the downside, initial support is seen at the Bollinger middle band near 156.10, ahead of stronger demand around the lower Bollinger Band at 152.95, where a deeper slide would likely meet buyers.
(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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