USD/JPY surrenders intraday gains as US Dollar advances
- USD/JPY falls back as the US Dollar gains on the Fed’s support for a restrictive policy stance.
- US President Trump’s tariff policies are expected to boost US inflation and weigh on economic growth.
- Japan’s National CPI cooled down in February.
The USD/JPY pair gives up entire intraday gains after facing selling pressure around 149.60 and drops to near 148.60 during North American trading hours on Friday. The asset drops as the US Dollar (USD) gains, with the US Dollar Index (DXY) rising to near 104.00.
The Greenback attracts bids as the Federal Reserve (Fed) is unlikely to cut interest rates in the near term. On Wednesday, Fed Chair Jerome Powell stated that they are not in a hurry to cut interest rates amid “unusually elevated” uncertainty over the United States (US) economic outlook under the leadership of President Donald Trump. Powell also warned that Donald Trump’s tariff policy tends to push growth lower and inflation higher.
During North American trading hours on Friday, Chicago Fed Bank President Austan Goolsbee and New York Fed Bank President Jon Williams signalled that the current interest rate policy is appropriate as the central bank lacks clarity over Trump’s economic policies.
Going forward, investors will focus on the flash US S&P Global Purchasing Managers’ Index (PMI) data for March, which will be released on Monday.
In the Asia-Pacific region, soft National Consumer Price Index (CPI) data for February has weighed on the Japanese Yen (JPY). The headline National CPI rose by 3.7%, slower than 4% growth seen in January. The National CPI ex. Fresh Food, which is closely tracked by Bank of Japan (BoJ) officials, grew at a faster-than-expected pace of 3% but pace remained moderate from the prior reading of 3.2%.
However, traders remained confident that the BoJ will tighten the monetary policy further this year as Japan's largest trade union group’s, Rengo, showed that firms agreed to raise pay growth by 5.4% this year.
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.