Japans MOF official says expects BoJ to steer policy aligned with economy, not influenced by US

A senior official from Japans Ministry of Finance on Tuesday declined to comment on recent foreign exchange shifts, adding that expected the Bank of Japan (BoJ) to steer monetary policy aligned with the economy, not influenced by the United States.

Key quotes

Declines to comment on recent forex shifts.

Expects BoJ to steer monetary policy aligned with economy, not influenced by U.S.

Katayama, Bessent talked fx intervention in bilateral meeting, among other issues.

Japan's fiscal policy, latest joint FX intervention among key topics in Katayama, Bessent meeting.

Finmin Katayama detailed conditions for U.S.-Japan joint intervention, factors behind decision to G7 counterparts.

No talks on U.S. bond repurchase at bilateral meeting.

Market reaction

At the time of writing, the USD/JPY pair is up 0.03% on the day at 159.80.

Japanese Yen FAQsWhat key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japans 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.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJs 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.

How does broader risk sentiment impact 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 Yens value against other currencies seen as more risky to invest in.