No major divergence on inflation outlook or policy, says Japan's Katayama; will coordinate with BoJ

There is no significant gap between the Japanese government and the Bank of Japan (BoJ) on the inflation outlook or policy, Japanese Finance Minister (FM) Satsuki Katayama said on Wednesday, adding that the two are coordinating closely.

What did Katayama say?

Government coordinating closely with BoJ, no major divergence on inflation outlook, policy.

Tax cut boosts demand and drives up prices.

Will ensure proactive, responsible fiscal policy enhances Japan's supply capacity, doesn't accelerate inflation.

How is USD/JPY trading?

USD/JPY is trading at 158.35 at the time of writing, a gain of 0.10% for the day.

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Japanese Yen: Frequently Asked Questions

What determines the Japanese Yen’s value?

Among the most actively traded currencies globally, the Japanese Yen (JPY) draws its value broadly from Japan’s economic performance. More specific influences include the Bank of Japan’s policy stance, the gap between Japanese and US bond yields, and traders’ appetite for risk, alongside other factors.

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

Currency control forms part of the Bank of Japan’s mandate, making its actions important for the Yen. On occasion, the BoJ has intervened directly in foreign exchange markets, usually to weaken the currency. Such intervention is infrequent, however, owing to political concerns among Japan’s principal trading partners. Between 2013 and 2024, the BoJ pursued an ultra-loose monetary policy. As its stance increasingly diverged from that of other major central banks, the Yen weakened against its main peers. The gradual withdrawal of that ultra-loose policy has more recently provided the Yen with some support.

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

The Yen lost ground to the US Dollar as the gap between 10-year US and Japanese bond yields widened. Behind this was the BoJ’s commitment to ultra-loose monetary policy over the last decade, which drove its policy stance further apart from those of other central banks, notably the US Federal Reserve. That yield gap is now narrowing as the BoJ’s 2024 decision to move gradually away from ultra-loose policy coincides with interest-rate cuts by other major central banks.

Why does risk sentiment influence the Japanese Yen?

When markets come under stress, investors are more likely to move funds into the Japanese Yen, which is widely regarded as a safe-haven investment because of its perceived reliability and stability. As a result, periods of turbulence are likely to lift the Yen against currencies considered riskier investments.