USD/JPY rallies above 143.00 on Japan Ishiba’s dovish dialogue

USD/JPY soars above 143.00 as Japan Ishiba emphasized the need for an accommodative policy stance.
Investors await Fed Powell’s speech for fresh interest rate guidance.
The Fed is expected to cut interest rates further by 75 bps this year.

The USD/JPY pair surges strongly above 143.00 in Monday’s North American session. The asset strengthens as dovish remarks from Japan’s new leader Shigeru Ishiba, who came out victorious in the Prime Ministerial contest on Friday, weighs heavily on the Japanese Yen (JPY).

Shigeru Ishiba said in an interview with public broadcaster NHK in Monday’s Asian trading hours, "From the government's standpoint, monetary policy must remain accommodative as a trend given current economic conditions."

For more interest rate cues, investors will focus on the Bank of Japan (BoJ) Summary Of Opinions (SOP) for the latest monetary policy meeting that took place on September 20. In the monetary policy announcement, the BoJ left interest rates unchanged at 0.1%-0.25% and guided them to remain data-dependent. While investors were anticipating hawkish remarks for the last quarter of the year.

Meanwhile, a slight recovery in the US Dollar has also weighed on the pair. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, recovers its intraday losses and rises to near 100.50. The Greenback gains ahead of Federal Reserve (Fed) Chair Jerome Powell’s speech, which is scheduled at 17:00 GMT.

Investors will pay close attention to Powell’s interest rate guidance to know how much the Fed will cut interest rates in the remainder of the year.

According to the CME FedWatch tool, the Fed is expected to reduce interest rates further by 75 basis points (bps), suggesting that there will be another 50 basis points (bps) in any of the two remaining meetings in November and December. On September 18, the Fed started its rate-cut cycle with a larger-than-usual cut of 50 bps.

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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