The Japanese Yen (JPY) shows a moderate pullback on Friday, despite the broad-based US Dollar (USD) weakness, following the US Treasury’s plan to double buybacks of long-term Government debt. The USD/JPY pair trades at 158.60 ahead of the US session opening after bouncing up from session lows at 158.03 as the widening Japanese Merchandise Trade Balance has hit the JPY.
Data released by Japan’s Ministry of Finance on Thursday revealed that the country’s trade deficit increased to JPY634.5 billion last month, from the JPY409 billion shortfall recorded in June. A 27.8% increase in imports is the main reason for the growing trade gap, as higher energy and semiconductor prices boosted costs in July.
These figures follow weaker-than-expected Japanese Gross Domestic Product (GDP) data released earlier in the week, which cast doubt about the Bank of Japan’s (BoJ) ability to accelerate its monetary tightening cycle, and added bearish pressure on the JPY.
US Treasury’s buybacks are keeping Dollar rallies limited
The Yen, however, appreciated 0.9% on Wednesday as the US Dollar plummeted across the board after the US Treasury unveiled a plan to double up liquidity support for longer-dated securities to $4 billion per auction from the current maximum of $2 billion.
The plan is aimed at easing pressure on US long-term Government Bonds, as the yield on the 30-year note hit a 19-year high of 5.33% earlier this week. Figures released by the US Treasury Department showed that national debt rose above $40 trillion, putting investors on edge and prompting bondholders to seek higher compensation.
Looking ahead, FX strategists at UOB highlight that “yesterday, in a sudden move, USD plunged and reached a low of 158.03,” and that “the upside bias has faded.” UOB experts observe that “the downward momentum is starting to build, but it is insufficient for a sustained decline,” pointing to a scenario in which “any (USD/JPY) decline should be contained within a 156.60/159.60 range.”
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.
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