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5 Mar 2025
USD/JPY drifts higher above 149.50 as Trump speaks
- USD/JPY edges higher to around 149.75 in Wednesday’s Asian session, up 0.50% on the day.
- Traders brace for Trump’s speech for fresh impetus.
- Fears about weaker US economic activity and a hawkish stance from the BoJ might cap the upside for the pair.
The USD/JPY pair attracts some buyers to around 149.75 during the Asian trading hours on Tuesday. The US Dollar (USD) gains ground as traders await more cues from US President Donald Trump’s speech. Later on Wednesday, the US ISM Services Purchasing Managers Index (PMI) for February will be in the spotlight.
Meanwhile, the US Dollar Index (DXY), a measure of the USD's value relative to its most significant trading partners' currencies, currently trades around 105.75, adding 0.18% on the day. However, the upside for the Greenback might be limited amid concerns over slowing economic growth and the impact of tariffs.
"Fears about weaker U.S. and global economic activity are manifesting in the markets, with cyclicals driving the sell-off," said Kyle Rodda, senior financial markets analyst at Capital.com.
The hawkish remarks from the Japanese authorities migth provide some support to the Japanese Yen (JPY) and create a headwind for USD/JPY. The BoJ Deputy Governor Shinichi Uchida said on Wednesday that the Japanese central bank will continue raising interest rates if its economic forecasts are met. Uchida added that Japan’s exit from its long-standing ultra-loose monetary policy has only just begun.
The BoJ is widely anticipated to continue hiking this year, supported by improving economic conditions, rising prices, and stronger wage growth, which align with the Japanese central bank’s policy normalization efforts.
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.