The Role of the Bank of Japan
The Bank of Japan plays a key role in currency control and has sometimes intervened to lower the Yen’s value, though political concerns limit this. The Bank’s ultra-loose monetary policy from 2013 to 2024 led to Yen depreciation against other currencies, but recent policy adjustments are supporting the Yen.
The Yen’s value is also affected by the difference in 10-year bond yields between Japan and the US. This differential widened due to Japan’s previous monetary stance but is narrowing as the Bank of Japan shifts its policy and other central banks cut rates.
The Japanese Yen is regarded as a safe-haven investment during market turmoil, where it tends to strengthen against riskier currencies.
Japan’s Increasing Concern Over Currency
With Japan’s finance minister now openly concerned about the yen’s weakness, we see a significant increase in the risk of direct currency intervention. The minister’s comments about “one-sided, rapid moves” are a classic warning shot to the market, especially with the USD/JPY rate hovering around 155.25. This suggests that further sharp declines in the yen may not be tolerated.
We have seen this happen before, with major interventions to support the yen occurring in both late 2022 and the spring of 2024 when the dollar pushed past similar levels. Those actions caused sudden and sharp drops in the USD/JPY pair, reminding us that these warnings should be taken seriously. The Ministry of Finance has demonstrated a clear threshold for pain, and we appear to be approaching it once again.
