Japanese Yen weakens against US Dollar despite easing risk aversion
- USD/JPY could weaken as the US Dollar struggles against easing risk aversion driven by newly emerging diplomatic signals.
- Iran received mediator proposals to de-escalate tensions with the US, including a potential 10-day ceasefire.
- Japanese Prime Minister Sanae Takaichi committed to maintaining market trust and fiscal sustainability in Japan's economic policy.
USD/JPY gains ground for the fourth successive day, trading around 162.60 during the European hours on Tuesday. Japanese banks will be closed due to Marine Day bank holiday.
The upside of the USD/JPY pair could be restrained as the US Dollar (USD) struggles amid easing risk aversion following emerging diplomatic signals. Iranian officials reported receiving mediator proposals aimed at de-escalating tensions with the United States, with reports even hinting at the possibility of a 10-day ceasefire.
According to Axios reports, US President Trump is currently weighing a decision between a temporary ceasefire to reopen the strategically crucial Strait of Hormuz and launching a full-scale joint military campaign alongside Israel, all while US forces continue to assemble in the region as talks progress.
Japanese Prime Minister Sanae Takaichi reaffirmed on Tuesday the administration's commitment to maintaining market trust and fiscal sustainability while guiding economic policy. Takaichi outlined the government's ambitions to accelerate economic expansion, aiming to achieve growth rates exceeding 1% on a real basis and 3% on a nominal basis as soon as possible, with goals for even higher long-term momentum.
Traders are turning their focus to Friday's upcoming release of Japan's National Consumer Price Index (CPI) data for June. Market participants will closely analyze these inflation figures for insight into the Bank of Japan’s (BoJ) monetary policy outlook. Expectations are building for the core CPI, which excludes fresh food, to rise to 1.6% year-over-year, up from May's 1.4% reading.
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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