Japan’s Katayama notes recent rapid, one-sided forex moves

Recent currency volatility is drawing scrutiny from Japanese officials, Finance Minister (FM) Satsuki Katayama said on Friday, noting that foreign exchange moves have lately been rapid and one-sided. The government will take appropriate action in response to currency volatility and engage with the US Treasury, Katayama added.

What Did Katayama Highlight?

Reserve funds to be used to bring forward winter utility subsidies.

Recent rapid, one-sided forex movements are being monitored.

Will coordinate with the US Treasury and take appropriate action.

At the summit, the US and Japan are aligned on forex policy.

No comment offered on the intervention record.

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How Is USD/JPY Trading?

USD/JPY is trading at 157.80 at the time of writing, a gain of 0.14% for the day.

Japanese Yen: Common Questions

What are the main drivers of the Japanese Yen?

Among the most actively traded currencies globally, the Japanese Yen (JPY) broadly reflects the performance of Japan’s economy. More specifically, its value is influenced by factors including Bank of Japan policy, the gap between Japanese and US bond yields, and traders’ appetite for risk.

Why do Bank of Japan policy decisions matter for the Japanese Yen?

Currency control is part of the Bank of Japan’s mandate, making its actions a significant influence on the Yen. Direct intervention in currency markets has occasionally been undertaken by the BoJ, usually to weaken the Yen. However, political concerns among Japan’s main trading partners have discouraged frequent intervention. Between 2013 and 2024, the BoJ maintained an ultra-loose monetary policy. The resulting increase in policy divergence with other major central banks drove the Yen lower against its principal currency peers. More recently, a gradual withdrawal of that ultra-loose policy has offered the Yen some support.

Why does the US-Japan bond yield gap matter for the Japanese Yen?

By retaining ultra-loose monetary policy over the past decade, the BoJ moved increasingly out of step with other central banks, especially the US Federal Reserve. That divergence helped widen the gap between 10-year US and Japanese bond yields, benefiting the US Dollar relative to the Japanese Yen. The gap is now narrowing as the BoJ follows through on its 2024 decision to gradually exit ultra-loose policy, while other major central banks cut interest rates.

How does the Japanese Yen respond to changes in risk appetite?

Investors often regard the Japanese Yen as a safe-haven asset because of its perceived stability and reliability. During periods of market stress, they are therefore more likely to move funds into the Japanese currency. Such turbulence is likely to lift the Yen against currencies considered riskier investments.