USD/JPY gains ground to near 148.50 amid political uncertainty in Japan
- USD/JPY edges higher to around 148.50 in Wednesday’s early Asian session.
- Trump said his administration would ask the Supreme Court for an expedited ruling on tariffs.
- Former PM Aso Taro will publicly call for a new LDP presidential election.
The USD/JPY pair trades on a stronger note around 148.50 during the early Asian session on Wednesday. Heightened political uncertainty in Japan weighs on the Japanese Yen (JPY) against the US Dollar (USD). The US JOLTS Job Openings and the Fed Beige Book will be published later on Wednesday.
On Friday, the US Court of Appeals for the Federal Circuit upheld a ruling that the sweeping tariffs the US President Donald Trump unilaterally imposed on most other countries were illegal. The decision impacts Trump's so-called "reciprocal" tariffs on most nations across the globe, including additional levies placed on China, Mexico, and Canada.
Treasury Secretary Scott Bessent said on Tuesday he expects the Supreme Court will approve Trump’s use of a 1977 emergency powers law to slap the tariffs on trading partners, and the administration has a backup plan if it does not. Meanwhile, Trump stated that he would ask the Supreme Court for an “expedited ruling.” Worries over trade uncertainty could drag the Greenback lower in the near term.
On the other hand, heightened political uncertainty in Japan could undermine the JPY and create a tailwind for the pair. Japanese media reported on Tuesday that former Prime Minister Aso Taro will publicly call for a new Liberal Democratic Party (LDP) presidential election on Wednesday. This development adds new impetus to the attempt to force current Prime Minister Shigeru Ishiba’s hand.
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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