Breaking: Japanese Yen strengthens on suspected FX intervention

The USD/JPY pair came under selling pressure, falling to 155.00 before rebounding to trade around 156.15 during Wednesday’s European session. The Japanese Yen (JPY) strengthens on suspected massive government interventions aimed at curbing its weakness against the US Dollar (USD). Japanese authorities are estimated to have spent around $35 billion last week to support the JPY after it breached the 160.00 psychological level. Traders remain on edge over the potential for Japanese officials to step back into the market after last week’s intervention to curb weakness. Japanese Finance Minister Satsuki Katayama said Japan can take action versus speculative foreign-exchange movements. On the USD’s front, the ADP Employment Change report for April will be published on Wednesday. The attention will shift to the US April jobs data later on Friday. The US economy is projected to see 60,000 job additions in April. The Unemployment Rate is estimated to remain steady at 4.3% during the same period. The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%. The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance. The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance. A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.