The USD/JPY pair falls sharply to near 157.00 in Wednesday’s European session. The asset dives vertically as the Japanese Yen (JPY) strengthens after hawkish remarks from Bank of Japan (BoJ) Governor Kazuo Ueda on Wednesday.
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.07% | -0.12% | -0.75% | -0.09% | -0.26% | -0.33% | -0.12% | |
EUR | 0.07% | -0.05% | -0.68% | -0.03% | -0.19% | -0.26% | -0.01% | |
GBP | 0.12% | 0.05% | -0.65% | 0.04% | -0.13% | -0.21% | 0.02% | |
JPY | 0.75% | 0.68% | 0.65% | 0.67% | 0.49% | 0.41% | 0.65% | |
CAD | 0.09% | 0.03% | -0.04% | -0.67% | -0.18% | -0.24% | -0.02% | |
AUD | 0.26% | 0.19% | 0.13% | -0.49% | 0.18% | -0.07% | 0.15% | |
NZD | 0.33% | 0.26% | 0.21% | -0.41% | 0.24% | 0.07% | 0.22% | |
CHF | 0.12% | 0.01% | -0.02% | -0.65% | 0.02% | -0.15% | -0.22% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Kazuo Ueda kept the possibility of an interest rate hike in the policy meeting on January 23-24 on the table. Ueda said that the central bank is currently “analysing data thoroughly” and will compile the findings in the quarterly outlook report, and on based on that the bank will discuss whether to “raise interest rates at next week's policy meeting”.
On the wage growth outlook, Ueda said that there was a lot of “positive talk on the wage outlook" when he met BoJ's regional branch managers last week.
Meanwhile, a sharp sell-off in the asset is also driven by a slight decline in the US Dollar (USD) ahead of the US Consumer Price Index (CPI) data for December, which will be published at 13:30 GMT. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, drops to near 109.00.
Investors will keep a close eye on the US inflation data as it will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. Year-on-year headline inflation is expected to have accelerated to 2.9% from 2.7% in November, with core reading – which excludes volatile food and energy prices – growing steadily by 3.3%. According to the CME FedWatch tool, traders expect the Fed to cut interest rates only once this year.
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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