160.00 in focus as yen weakens ahead of Fed speakers and US PPI

Seven-week range ends as USD/JPY reaches its strongest level since 2 September.
December rate rises expected from both the Fed and BoJ would preserve the interest-rate differential.
October producer price data from Japan precede Friday's US release.

160.00 is back within reach for USD/JPY for the first time since early September. Having broken out of its seven-week range, the pair has climbed to just below that level, its highest since 2 September. It now trades slightly below the peak, towards the upper end of Wednesday's range. Fed speeches and US producer price data remain on the agenda before the weekend.

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A stronger-than-forecast 0.4% increase in October's Consumer Price Index (CPI) was followed by Fed Governor Waller describing a rate rise at the 8-9 December meeting as likely. Futures put the probability of a quarter-point increase at close to 90%. At 3.75%-4.00%, the Fed's rate compares with 1.25% at the Bank of Japan (BoJ). That differential of at least two and a half points rewards investors holding Dollars rather than Yen.

Expectations also point to a BoJ rate rise. In October's 8-1 vote, BoJ board member Takata backed 1.50%; most economists expect the other members to follow at the 17-18 December meeting. If both central banks raise rates by a quarter-point nine days apart, neither the differential nor the incentive to hold Dollars instead of Yen would change.

Key data and Fed speeches

At 23:50 GMT on Wednesday, Japan releases October corporate goods prices. Third-quarter Gross Domestic Product (GDP) is then due at 23:50 GMT on Sunday. Both releases will inform the BoJ's December decision and, in turn, the Japanese component of the rate differential.

Thursday brings US jobless claims at 13:30 GMT, with a forecast of 195K compared with 189K. At 14:00 GMT, Cleveland Fed President Hammack begins a series of six Fed speeches that day. Friday's October US Producer Price Index (PPI) is due at the same hour; forecasts call for a 0.4% increase after September's 1.3%. With a quarter-point Fed increase already priced in, the claims and PPI figures will help determine whether a half-point move is possible.

160.00 in focus after range breakout

USD/JPY's breakout clears the 156.00-159.00 band in place since late September. The pair has now retraced almost the entire decline from the 2 September high near 160.50 to September's low around 153.00. On the two previous occasions it exceeded 160.00, in late July and early September, a fall of more than five Yen followed within a week.

Daily price chart: USD/JPY

Japanese Yen: frequently asked questions

Which factors are most important for the Japanese Yen?

Among the world's most actively traded currencies, the Japanese Yen (JPY) broadly reflects Japan's economic performance. More specific influences include Bank of Japan policy, the yield differential between Japanese and US bonds, and traders' appetite for risk, alongside other factors.

What effect do Bank of Japan decisions have on the Japanese Yen?

Currency control forms part of the Bank of Japan's mandate, making its actions an important influence on the Yen. Direct intervention in foreign exchange markets has occurred occasionally, usually with the aim of weakening the currency. Political concerns among Japan's main trading partners, however, discourage frequent intervention. Between 2013 and 2024, the BoJ's ultra-loose monetary policy weakened the Yen against its major peers as the policy gap with other leading central banks widened. The more recent gradual withdrawal of that policy has provided some support for the currency.

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

By maintaining ultra-loose monetary policy over the past decade, the BoJ moved increasingly out of step with other central banks, particularly the US Federal Reserve. The resulting widening in the yield differential between 10-year US and Japanese bonds favoured the US Dollar over the Japanese Yen. That differential is now narrowing following the BoJ's 2024 decision to gradually withdraw its ultra-loose policy, alongside interest-rate cuts by other major central banks.

What role does wider risk sentiment play in the Japanese Yen's value?

Investors often regard the Japanese Yen as a safe-haven asset. During periods of market stress, its perceived reliability and stability make them more likely to place funds in the currency. As a result, market turbulence is likely to lift the Yen against currencies viewed as riskier investments.