Japanese Yen rebounds from two-week low on intervention talk; fiscal concerns cap gains
- Japanese Yen refreshes a two-week low as Takaichi's landslide win revives fiscal concerns.
- Intervention warning prompts some intraday JPY short covering amid the USD weakness.
- A fall in Japan’s real wages tempers bets for an immediate BoJ rate hike and caps the JPY.
The Japanese Yen (JPY) kicked off the new week on a weaker note as Prime Minister Sanae Takaichi's landslide win in Sunday's election paves the way for further fiscal stimulus. The initial market reaction, however, turns out to be short-lived after Japan’s Finance Minister Satsuki Katayama stepped up JPY intervention warnings and confirmed close coordination with the US against disorderly FX moves. This, along with some follow-through US Dollar (USD) selling, triggers an intraday USD/JPY turnaround of nearly 150 pips from the Asian session swing high, around the 157.65 region.
Meanwhile, data released earlier today showed that Japan’s real wages shrank in December for a 12th consecutive month as nominal pay growth slightly undershot slowing consumer inflation. This keeps pressure on the Bank of Japan (BoJ) to move cautiously after raising interest rates to a three-decade high in December. Apart from this, the upbeat market mood, bolstered by signs of easing tensions in the Middle East, keeps a lid on further appreciation for the safe-haven JPY and assists the USD/JPY pair to stall the intraday retracement slide near the 156.20 region.
Japanese Yen bulls seem non-committal as fiscal woes and delayed BoJ rate hike bets counter intervention warning
- Japanese Prime Minister Sanae Takaichi's Liberal Democratic Party (LDP) sailed past the 233 seats needed for a majority in the lower house, marking a landmark victory in Sunday's election. The outcome, in turn, paves the way for promised tax cuts and a stronger defence system, shifting focus squarely to Japan's already strained public finances.
- Japan's Finance Minister Satsuki Katayama said that she will communicate with markets on Monday if needed to stabilize the Japanese Yen. Katayama reiterated that she was keeping in close contact with US Treasury Secretary Scott Bessent and stressed that Japan retains the right to intervene against moves that deviate from fundamentals.
- The Labour ministry reported this Monday that Japan’s nominal wages rose 2.4% YoY in December 2025, up from a revised 1.7% gain in the previous month. The reading, however, fell short of market expectations. Moreover, inflation-adjusted real wages fell 0.1% in December from a year ago, marking the 12th straight month of contraction.
- The data temper bets for an immediate rate hike by the Bank of Japan as policymakers have indicated that further monetary tightening will depend on sustained, broad-based wage gains. This, along with the prevalent upbeat mood across the global equity markets, keeps a lid on the JPY's intraday recovery from over a two-week trough.
- Indirect talks between the US and Iran on the future of the latter's nuclear program ended on Friday with a broad agreement to maintain a diplomatic path. This helps ease concerns about a military confrontation in the Middle East and boosts investors' appetite for riskier assets at the start of a new week, despite the latest US sanctions on Iran.
- The US Dollar attracts some sellers for the second straight day amid bets that the Federal Reserve will lower borrowing costs two more times in 2026. This marks a significant divergence in comparison to expectations that the BoJ will stick to its policy normalization path and caps the upside for the USD/JPY pair, warranting caution for bulls.
- The market focus now shifts to this week's release of the closely-watched US monthly jobs data – popularly known as the Nonfarm Payrolls (NFP) report on Wednesday. Apart from this, the latest US consumer inflation figures on Friday will drive the USD and provide a fresh impetus to the USD/JPY pair during the latter half of the week.
USD/JPY shows some resilience below 100-hour SMA amid mixed technical setup
The USD/JPY pair shows some resilience at the 100-hour Simple Moving Average (SMA) and stalls its intraday retracement slide near the 156.20 region. The latter should now act as a key pivotal point for intraday traders. The Moving Average Convergence Divergence (MACD) shows a bearish crossover near the zero line as momentum turns negative, hinting at building downside pressure. The Relative Strength Index (RSI) sits at 46, below the 50 midline, reflecting subdued momentum.
Meanwhile, the USD/JPY pair holds above the 100-hour SMA, currently pegged around the 156.55-156.50 region, keeping the near-term bias tilted upward and offering nearby dynamic support. A recovery in MACD back above the zero line and an RSI push through 50 would improve the tone and could pave the way for continuation. Conversely, a decisive close beneath the average would weaken the setup and open room for a deeper pullback.
(The technical analysis of this story was written with the help of an AI tool.)
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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