Market Data 
- USD/JPY marks fresh 38-year high at 161.27.
- Tokyo CPI rose to 2.3% year-over-year in June, up from the previous period’s 2.2%.
- The US Dollar (USD) gains ground due to higher yields on US Treasury bonds.
USD/JPY trades around 161.00, the highest level since 1986, during the Asian session on Friday. The Consumer Price Index (CPI) inflation in Tokyo rose to 2.3% year-over-year in June, up from the previous period’s 2.2%. Core Tokyo CPI inflation, which excludes volatile food prices, also increased during the same period, reaching 2.1% YoY compared to the previous 1.9%, surpassing the median market forecast of 2.0% YoY.
Japanese Finance Minister Shunichi Suzuki stated on Wednesday that he “will take appropriate steps on excessive FX moves.” Suzuki refrained from commenting on specific forex levels or potential interventions but emphasized the importance of currencies moving in a stable manner that reflects fundamentals. Chief Cabinet Secretary Yoshimasa Hayashi echoed similar sentiments as the Finance Minister.
The US Dollar (USD) gains ground due to higher yields on US Treasury bonds. 2-year and 10-year yields stand at 4.72% and 4.30%, respectively, by the press time. Federal Reserve (Fed) Board of Governors member Michelle Bowman noted on Thursday that while current Fed policies should be enough to drag inflation back to target, the Fed shouldn’t be unwilling to weigh further rate cuts in inflation data proves sticky.
Friday’s Core PCE Price Index inflation is projected to decrease year-over-year to 2.6% from the previous 2.8%. This data is seen as the Federal Reserve’s (Fed) preferred inflation gauge. Market participants are hoping that signs of easing inflation will encourage the Federal Reserve (Fed) to consider rate cuts sooner rather than later.
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 current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
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 supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
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.
