USD/JPY bounces back from 155.00 as BoJ Ueda avoids to provide rate hike timing

USD/JPY rebounds from 155.00 as BoJ Ueda didn’t provide specific timing for further interest rate hikes.
Japan Kato warned of possible intervention to support the Yen against excessive volatile moves.
Trump’s protectionist policies would accelerate US inflation and growth.

The USD/JPY recovers sharply from 155.00 in Monday’s North American session after a sharp correction on Friday. The asset bounces back as investors doubt the capability of the Bank of Japan (BoJ) to hike interest rates again in the near term.

In a meeting with business leaders in Nagoya, BoJ Governor Kazua Ueda kept hopes of more rate hikes alive by saying that the central bank will tighten the monetary policy further if the economy performs in line with its expectations. Ueda mentioned that the central bank is evaluating every factor including the risk associated with the United States (US) economy.

However, Ueda stayed vague on providing a specific timing for rate hikes, which forced traders to doubt BoJ’s ability to increase interest rates further.

Meanwhile, expectations of Japan’s intervention in the FX domain could offer some support to the Japanese Yen (JPY). On Friday, Japanese Finance Minister Katsunobu Kato warned of possible intervention if the yen fell too far and too fast.

The US Dollar (USD) performs strongly across the board as market participants expect interest rate cuts from the Federal Reserve (Fed) would be slower and shallow. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, clings to gains near 107.00, the highest level seen in more than a year.

Fed dovish bets have been eased as investors expect the economic agenda of President-elected Donald Trump to result in higher inflation and stronger economic growth.

This week, investors will pay close attention to the preliminary S&P Global PMI data for November, which will be published on Friday.

(The story was corrected at 14:05 GMT to say in the third paragraph that "However, Ueda stayed vague on providing a specific timing for rate hikes", not cuts)

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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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