USD/JPY rebounds above 146.50 as Fed cuts rate for first time this year
- USD/JPY gains ground to near 146.80 in Thursday’s early Asian session.
- Fed officials lowered their benchmark interest rate by a quarter percentage point and penciled in two more reductions this year.
- The BoJ is expected to leave interest rates unchanged on Friday.
The USD/JPY pair recovers some lost ground around 146.80 during the early Asian session on Thursday. The US Dollar (USD) bounces off the six-week lows near the 146.00 neighborhood after the Federal Reserve (Fed) cut interest rates by a quarter of a percentage point.
The Fed decided to cut its benchmark interest rate at its September meeting on Wednesday, the first time since December, and signaled more reductions are likely this year. Fed Chair Jerome Powell pointed to growing signs of weakness in the labor market to explain why officials decided it was time to cut rates after holding them steady since December amid concerns over tariff-driven inflation. Powell also emphasized ongoing concern over inflation pressures resulting from tariffs.
The Greenback receives some support, as Powell said the US central bank is in a "meeting-by-meeting situation" regarding the outlook for interest rates and characterized Wednesday's move as a risk management cut. Powell further stated that he does not feel the need to move quickly on rates.
Japanese Prime Minister Shigeru Ishiba's resignation added a layer of uncertainty in the markets and could fuel uncertainty over the likely timing and the pace of interest rate hikes by the Bank of Japan (BoJ). This, in turn, could undermine the Japanese Yen (JPY) and act as a tailwind for the pair.
The BoJ is expected to keep interest rates steady on Friday. Markets are looking to BoJ Governor Kazuo Ueda's post-meeting press conference for signals on when the BoJ will begin rate hikes, which have been paused since January while officials assess the impact of tariffs. Any hawkish remarks from BoJ policymakers could lift the JPY in the near term.
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.