Japan’s Kihara: Market moves will be monitored with a strong sense of urgency

Japan’s administration is monitoring market movements closely with a heightened sense of urgency. Deputy Chief Cabinet Secretary Minoru Kihara delivered that message during Wednesday’s European trading session, adding: “Markets move on various factors.”

Japanese Yen: Key Questions Answered

Japanese Yen: Main Market Drivers

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

Bank of Japan Policy and the Yen

Currency control forms part of the Bank of Japan’s mandate, making its actions a major influence on the Yen. Direct intervention in currency markets has occurred occasionally, usually with the aim of weakening the currency. However, political concerns among Japan’s main trading partners discourage frequent intervention. Between 2013 and 2024, the BoJ’s ultra-loose monetary stance increasingly diverged from that of other major central banks, driving the Yen lower against its main peers. A gradual withdrawal of that ultra-loose policy has more recently provided the currency with some support.

Japan–US Bond Yield Gap and the Yen

By maintaining ultra-loose monetary policy over the past decade, the BoJ moved further apart from other central banks, notably the US Federal Reserve. That divergence helped widen the yield gap between 10-year US and Japanese bonds, benefiting the US Dollar relative to the Japanese Yen. The gap is now narrowing as the BoJ follows its 2024 decision to progressively exit ultra-loose policy and other major central banks cut interest rates.

Risk Sentiment and Demand for the Yen

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

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