Japanese Yen dips further as higher US yields offset hawkish BoJ opinions
- USD/JPY stretches above 158.00, nearing one-month highs just above 159.00.
- The BoJ shows growing concerns about inflation, with some policymakers calling for a steeper monetary tightening cycle.
- US PCE inflation came out softer than expected, but the high Treasury yields keep the US Dollar buoyed.
The Japanese Yen (JPY) heads lower against the US Dollar (USD) on Thursday as higher US Treasury yields have offset the positive impact of a hawkishly tilted Summary of Opinions by the Bank of Japan (BoJ) and soft US inflation numbers. The USD/JPY pair advances beyond 158.00, drawing closer to the one-month high, just above 159.00.
Bank of Japan policymakers observed that Japan’s economy has recovered moderately while inflation is nearing the 2% target. Under these circumstances, some voices within the committee called for accelerating the monetary tightening pace or bringing interest rates to the central bank’s approximate goal sooner, according to the Summary of Opinions of September’s meeting, released earlier on Thursday.
The impact of these comments on the Yen, however, has been muted, as the US Dollar extended its uptrend, with US long-term Treasury yields rising to fresh highs. The uncertainty in the Middle East conflict and the energy shock stemming from it, plus the elevated debt of the world's major economies, have triggered a global bond sell-off that is pushing yields to their highest level in decades.
US inflation revisions temper pressure but keep October FOMC hike in play
The high US Treasury yields also offset a soft US Personal Consumption Expenditures (PCE) Price Index report on Wednesday, which showed that inflation rose less than expected in September, while data from August was revised lower. The report cooled hopes of back-to-back Federal Reserve (Fed) rate hikes, although the negative impact on the US Dollar was minimal.
Analysts at Societe Generale note that the August US inflation report gave mixed signals, as "softer core goods inflation masked a reacceleration in core services and super-core inflation, pointing to still-firm underlying price pressures."
Regarding monetary policy, Societe Generale argues that "inflation revisions were modestly favorable, but growth revisions were more important." In their view, "the economy entered 2H26 with stronger momentum than previously thought, while underlying inflation remains too elevated to provide the Fed with clear comfort." All in all, the experts conclude that "a pause in October remains possible, but an October hike remains on the table pending September CPI and PPI data."
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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