USD/JPY trades above 147.50, upside capped by Fed concerns
- USD/JPY may struggle as the US Dollar could face challenges due to rising concerns over Fed independence.
- President Trump announced the removal of Fed Governor Lisa Cook from her position.
- Japan’s chief trade negotiator, Akazawa, will return to the United States on Thursday for talks.
USD/JPY recovers its recent losses from the previous session, trading around 147.60 during the Asian hours on Wednesday. However, the upside of the pair could be restrained as the US Dollar (USD) may struggle amid rising concerns over Federal Reserve (Fed) independence.
US President Donald Trump announced early Tuesday that he was removing Fed Governor Lisa Cook from her position on the Fed's board of directors. This is considered the first instance of a president firing a central bank governor in the Fed’s 111-year history.
According to Reuters, if Cook’s seat becomes vacant, President Trump would have the chance to secure a majority on the Fed’s seven-member board. Trump has already nominated White House economist Stephen Miran to a temporary seat that expires in January and has suggested Miran could also be in the running for Cook’s position. Meanwhile, The Wall Street Journal reported that David Malpass, former World Bank president, is another potential candidate.
The Japanese Yen (JPY) could gain ground amid increasing stability in Japanese domestic politics amid improving public approval. Yomiuri newspaper public opinion poll showed on Monday a 20% rise in support for Japanese Prime Minister Shigeru Ishiba despite his ruling coalition losing its majority in July's parliamentary election.
Asahi TV reported on Wednesday that Japan's head trade negotiator, Akazawa, is heading back to the United States (US) on Thursday to discuss Japanese investment in the US. Traders await upcoming economic releases later this week, including Japan's Tokyo Consumer Price Index (CPI) and Retail Trade data due on Friday.
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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