USD/JPY trims gains and retreats to 146.60 after the US Japan trade deal
- The US Dollar drifts lower against the Yen as the US-Japan trade deal boosted risk appetite.
- Japanese PM Ishiba has denied reports suggesting that he is planning to quit in August.
- BoJ Deputy Governor Uchida cast doubts about near-term rate hikes amid persistent trade uncertainty.
The US Dollar-Yen recovery from 146.25 lows on Tuesday has been short-lived, as the pair was capped at 14715 before giving away previous gains. The Greenback has drifted to the 146.60 area following the announcement of a US-Japan trade deal
From a broader perspective, the pair is hesitating near two-week lows following
A nearly 1% depreciation over the previous two days, with both currencies on the back foot, as the US-Japan trade deal, announced earlier on Wednesday, boosted investors’ appetite for risk.
The US-Japan trade deal is supporting the Yen
Trump announced a “massive trade agreement” with Japan on his Truth Social network, which lowers tariffs on Japanese products to 15% from the 25% levy announced earlier in July, while Japan is expected to invest $550 billion in the US.
Somewhat later, Japan’s Prime Minister Shigeru Ishiba denied rumours from local media suggesting that he would resign in August as a result of the defeat in last weekend's parliamentary elections, which has eased concerns about political uncertainty and provided additional support to the Yen.
On the other hand, BoJ Deputy Governor, Uchida reiterated the bank’s cautious stance on interest rates, citing the persistent uncertainty over the impact of US tariffs on economic growth, which casts doubts about the timing of the next rate hike and hampers a stronger Yen recovery.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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