Japanese Yen rises as intervention fears and safe-haven flow offset political uncertainty
- Japanese Yen gains some positive traction and draws support from a combination of factors.
- Intervention fears and sustained safe-haven buying continue to act as a tailwind for the JPY.
- A modest USD uptick limits losses for USD/JPY as traders now await the BoJ decision on Friday.
The Japanese Yen (JPY) attracts some dip-buying during the Asian session on Tuesday and stalls the previous day's retracement slide from a one-week high against its American counterpart. Expectations that Japanese authorities would intervene to counter further weakness in the domestic currency continue to act as a tailwind for the JPY. Adding to this, rising geopolitical tensions over Greenland, along with renewed trade war fears, weigh on investors' sentiment and further underpin the JPY's safe-haven status.
Furthermore, prospects for an early interest rate hike by the Bank of Japan (BoJ) turn out to be another factor supporting the JPY. Traders, however, might opt to wait for the crucial BoJ policy update on Friday before placing fresh bullish bets around the JPY. Apart from this, domestic political uncertainty might contribute to capping the JPY. This, along with the emergence of some US Dollar (USD) buying, might contribute to limiting losses for the USD/JPY pair, which is currently seen trading around the 158.00 mark.
Japanese Yen benefits from safe-haven flow, intervention fears; bulls seem hesitant ahead of BoJ
- Japan's Prime Minister Sanae Takaichi said on Monday that she will dissolve parliament this week and hold a snap election on February 8, hoping for a stronger mandate to push through her ambitious fiscally expansionary policies. A strong majority for the ruling Liberal Democratic Party (LDP) in the lower house would give Takaichi more freedom to pursue her agenda, while a slim majority would deepen political uncertainty.
- Meanwhile, Japan's Finance Minister Satsuki Katayama warned last Friday that all options, including a direct intervention in the market, are available to deal with the recent weakness in the Japanese Yen. Katayama also hinted at the possibility of joint intervention with the US to support the domestic currency. This, along with hawkish Bank of Japan expectations and sustained safe-haven buying, revives the JPY demand on Tuesday.
- The recent JPY fall to an 18-month trough could add to price pressures and force the BoJ into faster action. In fact, data released last Friday showed that Japan’s inflation has averaged above the BoJ's 2% target for four straight calendar years. Furthermore, a Reuters report, citing sources, suggests that some policymakers inside the BoJ see scope to raise interest rates as early as April, sooner than markets currently expect.
- The JPY bulls, however, seem reluctant to place aggressive bets and opt to wait for more cues about the timing of the next BoJ rate hike. Hence, the focus remains glued to BoJ Governor Kazuo Ueda's comments during the post-decision press conference on Friday. The BoJ is expected to maintain the status quo at the end of a two-day meeting, after raising the overnight interest rate last month to 0.75%, or the highest in 30 years.
- US President Donald Trump threatened new tariffs against eight European countries in response to tensions over Greenland. The announcement sparked backlash from European leaders and heightened market uncertainty amid the protracted Russia-Ukraine war, boosting the traditional safe-haven JPY. However, a modest US Dollar uptick helps limit deeper losses for the USD/JPY pair during the Asian session.
- Traders trimmed their bets for two more interest rate cuts by the US Federal Reserve in 2026 after Trump said that he would prefer to keep National Economic Council director Kevin Hassett in his current role. This, in turn, suggests that someone else will be tapped to succeed the outgoing Fed Chair Jerome Powell, assisting the USD to attract buyers and stall the previous day's retracement slide from over a one-month high.
USD/JPY bears have the upper hand while below the 100-hour SMA pivotal resistance
The overnight bounce from the 61.8% Fibonacci retracement level of the upswing from the January low lacks follow-through strength beyond the 38.2% Fibonacci retracement level and falters ahead of the 100-hour Simple Moving Average (SMA). The latter is currently pegged around the 158.35 region and should act as a key pivotal point. The USD/JPY pair holds beneath this falling average, preserving a bearish bias. The Moving Average Convergence Divergence (MACD) remains near the zero line, with the histogram contracting toward flat, reinforcing a neutral tone. The Relative Strength Index (RSI) stands at 50 (neutral), indicating balance after a modest recovery.
Meanwhile, weakness below the 38.2% Fibonacci retracement level shifts focus to the 50% retracement support at 157.80, below which the USD/JPY pair could target the 61.8% retracement at 157.40. On the flip side, recovery attempts would meet initial resistance at the 100-period SMA at 158.35. A sustained move beyond would need improving momentum, with the MACD lifting away from zero and the RSI rising above 55 to strengthen the upside case.
(The technical analysis of this story was written with the help of an AI tool.)
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.