Yen decreased slightly but was strongly supported
According to FXStreet, in the trading session on February 26, the Yen lost slightly, the USD/JPY currency pair increased again near 149.30. However, global risk sentiment and the possibility of the Bank of Japan (BoJ) continuing to raise interest rates could help the Japanese Yen (JPY) strengthen and limit the pair's increase.
The BoJ is expected to raise interest rates from 0.50% to 0.75% this year. This could impact investor sentiment and support the Yen.
According to Bloomberg, the market is now betting that the BoJ will raise interest rates in September, with a 50% chance of it in June.
In addition, Japan's Producer-service-ading Index (PPI) data released on Tuesday also further reinforced the possibility of the BoJ raising interest rates. Japan is currently experiencing high consumer inflation, which further raises the prospect of the BoJ continuing to raise interest rates in the coming time, helping the Yen strengthen.
In the US, Conference Board's Consumer Confidence index fell the most since August 2021, to 98.3 in February compared to 105.3 previously. This could weaken the USD against the Yen.
However, traders are still watching the statements of Fed officials this week. If the Fed makes comments supporting continued interest rate hike, the USD could increase again.
According to Lao Dong, at 12:00 on February 26, the Yen exchange rate is currently at 149.553 JPY/USD, up about 0.4 percentage points.
Things to know about the Japanese Yen
What factors affect the Japanese Yen?
The Yen is one of the most traded currencies in the world. its value is affected by the health of the Japanese economy, the monetary policy of the Bank of Japan (BoJ), interest rate differential between Japan and the US, as well as the risk-off sentiment of investors in the market.
How does the Bank of Japan affect the Yen?
The BoJ is tasked with managing the Yen exchange rate. They will sometimes intervene in the foreign exchange market, often to weaken the Yen, but this does not happen often because it can put pressure on major trading partners. Throughout the period from 2013 to 2024, the BoJ applied a very loose monetary policy, causing the Yen to weaken compared to many other currencies. However, the BoJ has recently begun to tighten policy, helping the Yen recover.
How does the interest rate difference between Japan and the US affect the Yen?
For many years, the BoJ has maintained a low interest rate policy while the US Federal Reserve (Fed) has increased interest rates, creating a large gap between US and Japanese bond yields. This makes the USD stronger against the Yen. However, the BoJ has started raising interest rates since 2024, while other central banks, including the Fed, may cut interest rates. This narrowed the yield gap, supporting the Yen.
How does market risk sentiment affect the Yen?
The Yen is often considered a safe asset. When the financial market is unstable, investors tend to turn to hold the Yen because it is more stable than high-risk currencies. Therefore, when there are major fluctuations in the market, the Yen often increases in value compared to other currencies.
