Yen continues to increase in value

The USD/JPY pair fell to around 157.30 on January 3, down 0.21% on the day, according to FXStreet. The Japanese Yen (JPY) gained on supportive signals from the Japanese government, with officials warning of possible intervention to prevent the local currency from weakening too much. This move prompted investors to hold JPY, especially with Japanese markets closed for the weekend.

Signals from the Bank of Japan (BoJ) also played a role in supporting the yen. Next week, the BoJ will release its regional economic report, which is expected to provide further insight into wage growth across the country. If the report shows positive signs, this could increase the likelihood that the BoJ will maintain tighter monetary policy in the future, further strengthening the yen.

On the other hand, the US Federal Reserve’s cautiousness in cutting interest rates has also created conditions for the Yen to appreciate against the USD. The Fed has signaled that it will cut interest rates at a slower pace in 2025, when US inflation remains above its 2% target and the economy remains strong. This sentiment has made the USD lose some of its appeal, creating an opportunity for the JPY to demonstrate its role as a safe haven asset.

Japanese Finance Minister Katsunobu Kato recently expressed concern about the weakening yen and reiterated that Japan is ready to take necessary measures to prevent excessive foreign exchange fluctuations. These statements have helped boost confidence in the yen and attracted international investors.

The Japanese yen, which is considered a safe haven asset during times of uncertainty, has benefited from the market's risk aversion. In addition, the BoJ's gradual tapering of its ultra-loose monetary policy after 2024 has helped narrow the gap between Japanese and US bond yields. This shift has not only supported the JPY but also boosted confidence in Japan's economic outlook, creating momentum for further appreciation of the yen in the short term.

According to Lao Dong, updated at 3:00 p.m. on January 3, the USD/JPY exchange rate is currently fluctuating around 157.327 USD/JPY, meaning 1 USD can be exchanged for about 157 JPY.