- The Japanese Yen attracts some intraday sellers amid domestic political uncertainty.
- The upbeat market mood and reduced BoJ rate hike bets further undermine the JPY.
- A modest USD bounce supports USD/JPY, though US-Japan trade deal caps gains.
The Japanese Yen (JPY) trims a part of its intraday losses after Japan’s Prime Minister Shigeru Ishiba said that he did not discuss his resignation at all and that there was absolutely no truth to media reports about his intention. This, along with the optimism over US-Japan trade deal offers some support to the JPY and triggers a sharp USD/JPY pullback of around 50 pips in the last hour.
However, the upbeat market mood, along with diminishing odds for an immediate interest rate hike by the Bank of Japan (BoJ), is holding back the JPY bulls from placing aggressive bets. Apart from this, a modest US Dollar (USD) recovery from a nearly two-week low touched on Tuesday assists the USD/JPY pair to stick to its modest intraday gains heading into the European session.
Japanese Yen stalls intraday decline as Japan’s PM Ishiba downplays media reports
- Japanese Prime Minister Shigeru Ishiba said on Wednesday I shared strong sense of crisis with former prime ministers but did not discuss my resignation at all. There is absolutely no truth in media reports about my intention, Ishiba added further.
- In a social media post, US President Donald Trump announced that his administration had completed a trade deal with Japan. Trump added that Japan will be subject to reciprocal tariffs of 15% and will open their country to trade, including cars and trucks, rice, and certain other agricultural products.
- This helps ease market concerns about the potential economic fallout from steep US tariffs and pushes the Japanese Yen higher against the US Dollar for the third straight day, to a nearly two-week top during the Asian session on Wednesday. However, domestic political uncertainty caps the JPY gains.
- Japan’s ruling coalition – the Liberal Democratic Party (LDP) and its junior partner Komeito – failed to secure a majority in the upper house election on Sunday. Having already lost its majority in Japan’s more powerful lower house last year, the outcome is expected to undermine the coalition’s influence.
- History suggests that domestic political uncertainty tends to keep the Bank of Japan on the sidelines, suggesting that prospects for rate hikes could be delayed for a little bit longer, at least until October. This warrants caution for the JPY bulls and supports the USD/JPY pair amid a modest USD uptick.
- BoJ Deputy Governor Shinichi Uchida reiterated that the central bank will continue to raise its policy rate if the economy and prices move in line with its projections. Core consumer inflation may briefly dip below 2% the next fiscal year but is expected to gradually re-accelerate thereafter, Uchida added.
- Traders now look forward to the release of the US Existing Home Sales data, due later during the North American session. The focus, however, remains on the flash global PMIs on Thursday, which would provide a fresh insight into the global economic health and influence demand for the safe-haven JPY.
USD/JPY bears need to wait for acceptance below 100-day EMA before placing fresh bets
The USD/JPY pair struggles to find acceptance below the 38.2% Fibonacci retracement level of the monthly upswing. Moreover, spot prices have been showing some resilience below the 100-day Exponential Moving Average (EMA). This, in turn, warrants some caution for bearish traders amid neutral oscillators on the daily chart. Hence, some follow-through buying could lift spot prices further towards the 147.65 hurdle en route to the 148.00 round figure. A sustained strength beyond the latter would negate any near-term negative outlook and lift spot prices to the 149.00 mark with some intermediate hurdle near the 148.65 region, or the weekly high.
On the flip side, the 146.50 area, or the 100-day EMA, now seems to protect the immeediate downside ahead of the Asian session low, around the 146.20 area. Some follow-through selling below the 146.00-145.90 region, or the 50% retracement level, would be seen as a fresh trigger for bearish traders and make the USD/JPY pair vulnerable to accelerate the fall further towards the 145.00 psychological mark.
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.
Source: https://www.fxstreet.com/news/japanese-yen-retreats-sharply-from-two-week-high-against-usd-amid-political-uncertainty-202507230236