Decisive FX market action: Japan’s Katayama says government stands ready

Speaking on Tuesday, Japanese Finance Minister (FM) Satsuki Katayama said that decisive action in the foreign exchange market remains an option the government is ready to take. Officials are watching market movements closely with heightened urgency, including at the present moment, Katayama added.

Key remarks

The government is prepared to take decisive steps in FX market.

Closely monitoring market moves with heightened urgency including at this moment.

Yen must shift to reflect fundamentals.

Aim to sustain market confidence in Yen, Takaichi administration’s fiscal approach via clear, consistent communication.

Aims to preserve market confidence in yen, Takaichi administration's fiscal policy via transparent, consistent communication.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

USD/JPY trading update

157.70 is the USD/JPY level at the time of writing. The pair is trading 0.12% higher on the day.

Japanese Yen: Key Questions

Japanese Yen: Main Drivers

Among the world’s most actively traded currencies, the Japanese Yen (JPY) broadly reflects 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 is part of the Bank of Japan’s mandate, making its actions a major influence on the Yen. Direct intervention in currency markets has occasionally been used by the BoJ, usually to weaken the currency. Political concerns among Japan’s main trading partners, however, discourage frequent intervention. From 2013 to 2024, the BoJ’s ultra-loose monetary stance drove the Yen lower against its major peers as policy increasingly diverged from that of other leading central banks. The gradual withdrawal of that ultra-loose stance has more recently provided some support for the Yen.

10-Year Yield Gap: Implications for the Yen

By maintaining ultra-loose monetary policy over the last decade, the BoJ increasingly diverged from other central banks, particularly the US Federal Reserve. The resulting widening in the yield gap between 10-year US and Japanese bonds helped the US Dollar strengthen against the Japanese Yen. That gap is now narrowing as the BoJ implements its 2024 decision to move gradually away from ultra-loose policy, while 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, turning to it during market stress because of its perceived stability and reliability. As a result, periods of turbulence are likely to lift the Yen against currencies considered riskier investments.