Japanese Yen extends losses despite looming intervention risks
- USD/JPY rises beyond 157.00 amid higher Oil prices.
- Trump's refusal of Iran's peace proposal has curbed hopes of Hormuz reopening.
- Ongoing risks of a Tokyo intervention are likely to keep US Dollar rallies limited.
The US Dollar (USD) appreciates against the Japanese Yen (JPY) on Monday, retracing Friday’s losses and returning to levels above 157.00 at the time of writing. The jump in Oil prices after US President Donald Trump’s rejection of Iran’s peace proposal is underpinning the US Dollar’s recovery, with risks of a Tokyo intervention still alive.
Trump posted on social media that Tehran’s response to the US peace proposal is “totally unacceptable”, which has crushed hopes of a swift end to the war and pushed back expectations of a prompt reopening of the Strait of Hormuz. Oil prices rallied after the news, with the WTI barrel appreciating about $3 to $94.50 and Brent Oil returning above the key $100 level.
On Friday, US Nonfarm Payrolls data revealed that the economy created almost twice the 62K jobs expected, with a 115K increase in April. This shows some stabilisation of the labour market and eases pressure on the Federal Reserve to cut rates anytime soon. Considering the hot inflationary pressures, these figures back the claims of Fed hawkish dissenters and provides suppor to the US Dollar.
The Japanese Yen's sellers, however, are likely to remain cautious, as the risks of a Tokyo intervention remain high after several alleged interventions in the last two weeks. Reports from Reuters suggest that the Japanese Ministry of Finance might have spent nearly JPY 10 trillion (USD 63.7 billion) in several interventions since the first one, which allegedly took place on April 28.
US Treasury Secretary Scott Bessent is planning to visit Tokyo next week, where he will discuss the Japanese Yen weakness, and Tokyo authorities will look for US support to fight speculative moves. This is likely to keep JPY bears on edge.
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.