Key moments

• The yen is trading slightly above 147.90, achieving a climb following several days of notable value loss.
• Escalating global trade tensions have boosted demand for the yen.
• Rising Japanese bond yields, driven by the BOJ’s rate normalization, have attracted investors.

Yen Rounds After Dip Below 147.60

The Japanese yen found a degree of stability on Thursday, trading around the 148 mark against the US dollar after several days marked by depreciation. This relative calm follows a period of notable volatility, exemplified by a dip below the 147.60 threshold before a subsequent recovery that pushed the currency above the 147.90 level.

The stabilization of the yen is occurring amidst a backdrop of escalating global trade tensions. The implementation of tariffs, particularly by the United States, and the retaliatory actions taken by other nations, have injected significant uncertainty into the global economic landscape. This has created a demand for safe-haven currencies, with the yen benefiting from this trend.

On the domestic front, the yen’s strength is bolstered by the expectation of continued monetary tightening by the Bank of Japan. The sustained increase in wages, coupled with persistent inflation, has provided the BOJ with justification for raising interest rates. The recent agreements by Japanese companies to implement substantial wage hikes for the third consecutive year have reinforced these expectations. These wage adjustments are anticipated to stimulate consumer spending, thereby contributing to inflationary pressure.

An increasingly favorable interest rate differential serves to strengthen the yen. As the Bank of Japan steadily normalizes its rates, yields on Japanese government bonds (JGBs) rise, making the yen a more appealing investment compared to other currencies. This is especially evident when contrasted with the US dollar, which is facing downward pressure due to anticipated Federal Reserve rate reductions.

The yen’s movements are also subject to technical influences. The recent recovery from below 147.600, followed by the ascent above 147.90, demonstrates the currency’s sensitivity to market sentiment and trading patterns. The overall trajectory, however, remains contingent on the evolving dynamics of global trade and domestic economic conditions, and the yen has yet to reach the 149 level.