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Japanese Yen rises again as safe-haven demand counters political risks | FXStreet

The Japanese Yen (JPY) remains on the front foot against its American counterpart for the second successive day on Wednesday, though it lacks bullish conviction amid a mixed fundamental backdrop. Shifting US-China trade dynamics, geopolitical tensions, and concerns about a prolonged US government shutdown continue to underpin demand for safe-haven assets, including the JPY. Furthermore, the recent comments from Finance Minister Katsunobu Kato fueled speculations about a possible government intervention to stem any further JPY weakness and remain supportive.

Meanwhile, the Liberal Democratic Party’s (LDP) long-standing coalition with Komeito ended abruptly last Friday, ahead of the October 20 deadline to confirm Sanae Takaichi as Japan’s first female Prime Minister. This adds a layer of uncertainty and puts pressure on the Bank of Japan (BoJ) to further delay raising interest rates and might hold back the JPY bulls from placing fresh bets. The US Dollar (USD), on the other hand, struggles to attract buyers amid dovish Federal Reserve (Fed) expectations and should keep a lid on any intraday positive move for the USD/JPY pair.

Japanese Yen attracts buyers as global flight to safety offsets Japan’s political crisis

  • Tensions over trade tariffs heated up on Tuesday after China announced new special port fees for US ships arriving in Chinese ports. This comes on top of China’s enhanced restrictions on the export of rare earths and US President Donald Trump’s threat to raise tariffs on Chinese goods to 100%.
  • Furthermore, Trump threatened to terminate trade with China in cooking oil and other products in response to China’s decision not to purchase US soybeans. This sparks concerns about a further escalation of the trade war between the world’s two largest economies and benefits safe-haven assets.
  • Media reports suggest that Trump was considering sending the US-made Tomahawk long-range cruise missiles to Ukraine to pressure Russian President Vladimir Putin into negotiations. This keeps geopolitical risks in play and benefits the Japanese Yen during the Asian session on Wednesday.
  • The latest vote to pass a Republican-backed stopgap funding bill to end the partial federal government shutdown fell short of the votes needed for passage in the Senate on Tuesday. This means that the shutdown, which started on October 1, will extend into a third week, with no resolution in sight.
  • The long-standing Liberal Democratic Party (LDP)–Komeito coalition came to an abrupt end last week. The breakup, in turn, means the newly elected LDP leader, Sanae Takaichi, would need support from other parties to confirm her as Japan’s first female Prime Minister and for her key policies.
  • This might create a challenge for the Bank of Japan to hike interest rates and could act as a headwind for the JPY. However, traders are still pricing in the possibility of a further BoJ policy tightening this year. This marks a significant divergence in comparison to dovish Federal Reserve expectations.
  • The CME Group’s FedWatch Tool indicates that traders have fully priced in that the US central bank will lower borrowing costs by a 25-basis-point in October and see a 90% chance for another rate reduction in December. This exerts pressure on the US Dollar and drags the USD/JPY pair lower.

USD/JPY could accelerate the downfall below the 200-hour SMA, around 151.20-151.15

This week’s repeated failures to rise above the 100-hour SMA and the subsequent decline suggest bearish momentum for USD/JPY. Still, positive oscillators on the daily chart suggest that support could emerge near the 200-hour SMA around 151.20. A break below this level could open the way to the 151.00 mark en route to the 150.70 intermediate support and the 150.00 psychological mark.

On the flip side, any intraday recovery beyond the 151.65-151.70 region might now confront an immediate hurdle near the 152.00 round figure. A further move up is likely to attract some sellers near the 152.25 area and remain capped near the 152.65-152.70 region. A sustained strength above the latter could shift the bias in favor of bullish traders and lift the USD/JPY pair beyond the 153.00 mark, towards retesting the eighth-month high, around the 153.25-153.30 region, touched last Friday.

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.