The USD/JPY pair holds steady near 161.55 during the early Asian session on Tuesday. Progress in US–Iran peace talks and intervention fears from the Japanese authorities might cap the upside for the pair. Traders will closely monitor the developments surrounding the ongoing talks in Switzerland between Washington and Tehran.
US Vice President JD Vance said on Monday that talks between the US and Iran have made “great progress” despite “threatening” and “whining.” Earlier, Iran’s Foreign Minister, Abbas Araghchi, stated the negotiations had yielded “major progress.”
Traders are on high alert for currency intervention after further weakness in the JPY. Japan’s Finance Minister Satsuki Katayama said on Monday that the officials are ready to respond appropriately to the currency moves at any time as needed.
On the other hand, a hawkish tone from the US central bank might help limit the US Dollar’s (USD) losses. Last week, the Federal Reserve (Fed) decided to leave its benchmark interest rate unchanged between 3.50% and 3.75%. Fed new projections and comments from Kevin Warsh, who was presiding over his first meeting as chair, were more hawkish than markets anticipated.
Futures traders have priced in that the US central bank is likely to hike rates by 25 basis points (bps) at its September meeting, with some chance seen of a move as soon as next month’s meeting.
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.