- USD/JPY retreats after gaining over 2% in the previous session.
- The BoJ’s latest policy summary underscores lingering uncertainty, suggesting a divergence of views among policymakers over the policy outlook.
- BoJ Deputy Governor Shinichi Uchida noted that US tariffs pose both upside and downside risks to Japan’s inflation outlook.
USD/JPY is experiencing a pullback, trading around 147.90 during Tuesday’s Asian trading hours, after a surge of over 2% in the prior session. The currency pair is under pressure as the Japanese Yen (JPY) strengthens, despite persistent uncertainty surrounding the Bank of Japan’s (BoJ) interest rate outlook. This retracement reflects market sensitivity to evolving signals from Japanese monetary authorities.
BoJ Deputy Governor Shinichi Uchida addressed the potential impact of US tariffs, acknowledging both upside and downside risks for the Japanese economy. He cautioned that such measures could negatively affect Japan’s economic growth. Uchida projected a slowdown in Japan’s economic growth toward its potential rate before a gradual recovery, contingent on a rebound in overseas economies. His remarks highlight the BoJ’s cautious approach amid global economic uncertainties.
Deputy Governor Uchida also highlighted the upward pressure on wages due to a tight labor market. He suggested that companies are likely to continue passing on increased labor costs to consumers, which could bolster underlying inflation and inflation expectations over the medium term. This observation is crucial as the BoJ assesses the sustainability of inflation and considers future policy adjustments.
Japanese Finance Minister Katsunobu Kato indicated on Tuesday the possibility of a meeting with US Treasury Secretary Scott Bessent to discuss foreign exchange matters and potentially the ongoing tariff negotiations between the US and China. He reiterated Japan’s commitment to closely monitoring these discussions, although he refrained from commenting on specific currency levels. This underscores Japan’s concern over the potential impact of trade disputes on its economy.
The Bank of Japan’s (BoJ) Summary of Opinions from its April 30–May 1 monetary policy meeting revealed that persistent uncertainty remains a primary concern among board members. One member suggested that the central bank is likely to pursue further interest rate hikes in response to improvements in economic conditions and inflation. Another member stressed the importance of maintaining the current rate-hike trajectory, pointing out that real interest rates remain significantly negative, while advocating for careful risk assessment. A separate member voiced concerns about the US’s trade policy, warning that escalating tariffs could have a substantial impact on Japan’s economic outlook and inflation trajectory. These diverse opinions highlight the internal debate within the BoJ regarding the appropriate path for monetary policy.
The US and China reached an agreement over the weekend to temporarily halt the implementation of steep triple-digit tariffs as part of preliminary trade negotiations. This temporary reprieve offers markets a degree of short-term stability ahead of the US’s planned “reciprocal” tariff schedule, which is set to resume in 90 days. The market’s reaction to this truce indicates the sensitivity of global financial markets to trade-related developments.
Looking ahead, market participants are keenly awaiting the release of the US Consumer Price Index (CPI) report for April, scheduled for later on Tuesday. The consensus forecast anticipates a rebound in headline inflation to 0.3% month-over-month, compared to the previous reading of -0.1%. Core CPI is also projected to increase to 0.3% from 0.1%. Year-over-year figures for both headline and core CPI are expected to remain stable. These inflation figures will be crucial in shaping expectations for the Federal Reserve’s future monetary policy decisions.
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.
