USD/JPY gathers strength to near 147.50 amid tariff uncertainty
- USD/JPY strengthens to around 147.55 in Tuesday’s Asian session.
- Japan's PM vows to stay on even as his ruling coalition is certain to lose control of the upper house in Sunday's election.
- Investors will closely monitor the developments surrounding US-Japan trade talks.
The USD/JPY pair attracts some buyers near 147.55 during the Asian trading hours on Tuesday. The Japanese Yen (JPY) weakens against the US dollar (USD) due to political uncertainty and rising concerns over the direction of future fiscal policy in Japan.
Japanese Prime Minister Shigeru Ishiba has vowed to remain in office, despite exit polls showing that his ruling Liberal Democratic Party (LDP) is certain to lose control of the upper house in Sunday's election. David Chao of Invesco said that the outcome of Japan's upper-house election "was largely expected by the markets." Chao further stated that "all eyes are very much on the trade deal now between Japan and the US."
Traders will shift their attention to the US-Japan trade talks. Japan's chief tariff negotiator, Ryosei Akazawa, said on Monday that he will aim for some kind of trade agreement with the US by August 1. Any signs. Political pressure in Japan, along with the renewed trade tensions, could undermine the JPY and act as a tailwind for the pair in the near term.
Nonetheless, the cautious stance from the US Federal Reserve (Fed) might drag the Greenback lower. Fed Governor Christopher Waller acknowledged that while the labor market remains stable overall, conditions in the private sector are less robust.
Waller expressed support for a potential rate cut in July, adding that the Fed shouldn't "wait until the labor market deteriorates before we cut the policy rate."Markets are now pricing in nearly a 59% odds of a rate cut by the US central bank in September, according to the CME FedWatch 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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