Forex News
- AUD/USD remains steady above 0.6900 this week, unfazed by the rising geopolitical tensions.
- Markets remain hopeful that the US and Iran will resume peace talks.
- The Fed minutes highlighted a committee divided on the rate path and sent the US Dollar lower across the board on Wednesday.
The Australian Dollar (AUD) keeps trading sideways against the US Dollar (USD) on Thursday, showing a surprising resilience to the escalating tensions in Iran. The pair has been steady above 0.6900 in the face of the rising tensions in Iran, with bearish momentum fading, as investors remain hopeful that Washington and Tehran will return to the negotiating table.
US and Iran exchanged attacks for the second consecutive day on Thursday, but failed to do any significant harm to the risk-sensitive Australian Dollar. Investors keep seeing these skirmishes as manoeuvres to gain leverage in the peace negotiations, with the idea of an all-out war discarded for now.
Fed minutes fail to support the USD
Beyond that, the minutes of the Federal Reserve’s (Fed) first monetary policy meeting under Chair Kevin Warsh’s leadership showed a government board split on the near-term monetary policy path. The overall tone of the minutes was tilted to the hawkish side, with the policymakers showing a distinct commitment to bring inflation to target, but the US Dollar dropped across the board following the release.
Data released on Thursday, however, was far from supportive for the Aussie. China’s Consumer Price Index (CPI) contracted 0.3% in June, beyond the 0.2% drop forecasted by market analysts and also below the 0.1% contraction seen in May. Yearly inflation slowed down to 1% from 1.2% in May, also below the 1.1% expected.
These figures confirm that domestic demand in the world's second-largest economy remains sluggish, which casts shadows on the Australian economic outlook. China is Australia's main trading partner, and its Gross Domestic Product (GDP) is strongly dependent on export activity.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- Gold remains on the defensive as bulls seem hesitant despite a softer USD.
- US-Iran tensions, inflation fears, and Fed hike bets limit deeper USD losses.
- The technical setup backs the case for further depreciation for the bullion.
Gold (XAU/USD) maintains its bid tone above the $4,100 mark through the first half of the European session on Thursday and looks to build on the previous day's bounce from a one-week low. The US Dollar (USD) remains on the back foot in the absence of a notable hawkish shift in the FOMC Minutes, lending some support to the bullion. That said, renewed US-Iran hostilities revive inflation fears and bolster bets on a US Federal Reserve (Fed) rate increase in 2026, which could limit deeper USD losses and cap the non-yielding yellow metal.
The Minutes from the June 16–17 FOMC meeting, released on Wednesday, revealed that policymakers were divided with regard to the direction of interest rates. The minutes further stated that many participants indicated the appropriate level of the federal funds rate would be within or slightly below the current target range at the end of this year. This comes on top of last Thursday's soft US Nonfarm Payrolls (NFP) report and does little to alter Fed hike bets. Fed officials, however, noted that the upside risk to inflation remains elevated and indicated that some policy firming would likely be warranted to return inflation to 2%.
Moreover, traders are still pricing in around a 70% chance that the US central bank will raise borrowing costs in September. This, along with a further escalation of tensions between the US and Iran, holds back the USD bears from placing aggressive bets. In the latest development, the US military unleashed a new wave of strikes against Iran in retaliation for Tehran’s attacks on commercial ships in the Strait of Hormuz. Iran retaliated by continuously targeting US military installations and assets across Bahrain and Kuwait. Adding to this, US President Donald Trump said on Wednesday that the ceasefire with Iran was now over.
The aforementioned fundamental backdrop favors the USD bulls, suggesting that any recovery attempt in the Gold price is more likely to be sold into and remain limited. Traders now look forward to the release of the Weekly Initial Jobless Claims data from the US, which, along with speeches from influential FOMC members, will drive the USD demand. The focus, however, will remain glued to the Middle East saga, which might continue to infuse volatility in global financial markets and produce some meaningful trading opportunities around the precious metal.
XAU/USD daily chart
Gold's technical setup backs case for emergence of sellers at higher level
From a technical perspective, the XAU/USD pair keeps a bearish near-term bias beneath the 200-day Simple Moving Average (SMA) and within a downward parallel channel. Meanwhile, the Moving Average Convergence Divergence (MACD) has turned positive, and the Relative Strength Index (RSI) is at 40.26, having recovered only modestly from oversold territory. This hints that any rebound would face strong resistance at the channel top near $4,247.94.
A sustained break above the channel barrier would be needed to ease the current bearish pressure, ahead of a more robust barrier at the 200-day SMA around $4,492.08. On the downside, the lower boundary of the descending channel at $3,811.93 emerges as the next significant support, where bulls would be expected to defend the broader uptrend if the ongoing correction extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
The Japanese Yen (JPY) remains locked in a high-stakes standoff against the US Dollar, testing the ultimate limits of Tokyo’s tolerance for its local currency to depreciate.
While a combination of a dovish Bank of Japan (BoJ), loose domestic fiscal policy, and structural vulnerabilities as a net energy importer continue to weigh down the asset, speculative short positioning has reached heavily stretched extremes.
Market observers warn that while the immediate technical path points to further gradual upside for the USD/JPY pair, the threat of unannounced government intervention looms large, setting the stage for a potentially violent and sudden trend reversal.
Structural pressures and extreme positioning heighten intervention threats
FX strategists at ABN AMRO note the market is aggressively probing the boundaries of official tolerance for a weaker Yen. The persistent fundamental headwinds pushing the currency cross past 162.00 could easily gather enough near-term velocity to target the 164.50 handle.
However, the extreme structural imbalance in market positioning (where global macro players are overwhelmingly long on the US Dollar and heavily short on the Yen) means that any sudden official intervention could trigger an unravelling that is both fast and enduring.
If sentiment turns in favour of the yen, be it because of intervention concerns or other factors, the rebound could be sharp.
Near-term technical structures point to capped upside below 163.00
Technical analysts at UOB note that the USD/JPY cross maintains a persistent, albeit lackluster, upward bias.
While intraday momentum leaves the door open for an extension to test the 162.80 level, heavier overhead psychological ceilings are expected to contain a runaway breakout in the short run, shifting the multi-week outlook into a broader consolidation phase.
Support is at 162.35; a breach of 162.20 would suggest that USD is likely to range-trade instead of testing 162.80.
Banks project range-bound trade ahead of potential policy-driven squeeze
The banks project an upside-biased yet highly precarious near-term trend for the USD/JPY pair, warning that the currency cross is approaching a critical tipping point.
ABN AMRO emphasizes that the lack of immediate intervention shouldn't lull bears into complacency, as a structural shift could abruptly punish overextended shorts and send the pair tumbling from its multi-decade highs. UOB establishes clear boundaries for this technical grind, concluding that over a one-to-three-week horizon, the pair will remain confined within a mixed 160.60 to 163.00 range, though the broader multi-month advance will remain technically intact as long as spot price action holds securely above its 21-day Exponential Moving Average (EMA) at 161.00.
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Dow Jones futures climb as a sharp surge in the tech and AI sectors is driving the broader market recovery.
- Tech futures jumped on reports that Beijing will permit top Chinese AI firms to buy a limited number of Nvidia's H200 chips.
- June’s Meeting Minutes revealed a widening policy divide during Kevin Warsh's debut as Fed Chairman.
Dow Jones futures gain 0.17% to trade around 52,710 during European trading hours on Thursday. Meanwhile, S&P 500 futures and Nasdaq 100 futures advance 0.34% and 0.74%, trading near 7,550 and 29,690, respectively.
US stock futures rise amid a sharp bounce in tech and AI sectors. Tech futures jumped on reports that Beijing will allow top Chinese AI firms to purchase a limited supply of Nvidia's H200 chips. Chinese officials have recently informed major players, including Alibaba, ByteDance, and DeepSeek, that they may soon receive the necessary green light to procure the processors.
However, traders worry that elevated energy prices could reignite inflation, potentially forcing the Federal Reserve (Fed) into an earlier-than-expected rate hike. This follows a down Wednesday where the Dow Jones and S&P 500 fell 1.09% and 0.28%, dragged down by materials, financials, and real estate, while the Nasdaq 100 managed a 0.2% gain alongside strong energy and tech sectors.
Fed June Meeting Minutes underscored a widening rift among policymakers during Kevin Warsh’s debut meeting as FOMC Chairman on June 16–17. While a portion of the committee anticipated that the benchmark rate, currently holding at a target range of 3.50% to 3.75%, would likely end the year unchanged or lower, a hawkish contingent strongly argued that persistent price pressures would require a rate hike by year-end.
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
- DXY drifts lower for the second straight day and weakens below 101.00 on Thursday.
- The technical setup favors bulls and backs the case for the emergence of dip-buying.
- A convincing break below the 100.55 support zone will set the stage for further losses.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, extends the previous day's pullback from the 101.25-101.30 region and attracts some follow-through sellers on Thursday. The index touches a fresh weekly low during the first half of the European session and currently trades around the 100.90 area, down over 0.15% for the day.
From a technical perspective, the DXY is supported by the 23.6% Fibonacci retracement level of the May-June upswing and holds a constructive near-term bias above the 100.50 horizontal resistance breakpoint, which should act as a pivotal point. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator stays below zero with a negative reading at -0.09, hinting that bullish momentum is still tentative despite the supportive structure.
Furthermore, the Relative Strength Index (RSI) at 56.09 sits in neutral territory, suggesting moderate upside pressure rather than an overextended rally. This, in turn, suggests that a convincing break below the 100.55 resistance-turned-support should pave the way for deeper losses. The DXY might then weaken below the 38.2% level at 100.20, towards the mid-range support band around the 50.0% retracement at 99.72 and the 50-day SMA at 99.75.
A deeper pullback would expose secondary Fibonacci floors at 99.23 and 98.53, followed by the structural anchor near 97.65. On the topside, the next notable resistance emerges at the cycle high around 101.78, where a clear break would be needed to extend the broader bullish sequence.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
DXY daily chart
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.14% | -0.23% | -0.16% | 0.08% | -0.15% | -0.69% | -0.26% | |
| EUR | 0.14% | -0.09% | -0.04% | 0.22% | 0.02% | -0.49% | -0.11% | |
| GBP | 0.23% | 0.09% | 0.07% | 0.32% | 0.10% | -0.44% | -0.03% | |
| JPY | 0.16% | 0.04% | -0.07% | 0.22% | 0.04% | -0.53% | -0.10% | |
| CAD | -0.08% | -0.22% | -0.32% | -0.22% | -0.19% | -0.73% | -0.32% | |
| AUD | 0.15% | -0.02% | -0.10% | -0.04% | 0.19% | -0.54% | -0.12% | |
| NZD | 0.69% | 0.49% | 0.44% | 0.53% | 0.73% | 0.54% | 0.41% | |
| CHF | 0.26% | 0.11% | 0.03% | 0.10% | 0.32% | 0.12% | -0.41% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
- Japanese Yen rises against the US Dollar even as geopolitical risks have resurfaced.
- The renewed Middle East war could be prolonged as the US has attacked Iranian infrastructure.
- The FOMC minutes show that policymakers see high inflation as the dominant risk.
The Japanese Yen (JPY) trades higher against the US Dollar (USD) despite renewed geopolitical risks. The USD/JPY pair is down 0.17% to near 162.35 as the US Dollar faces selling pressure even as the exchange of attacks between the United States (US) and Iran has de-anchored United States (US) inflation expectations again.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.15% | -0.23% | -0.16% | 0.07% | -0.15% | -0.69% | -0.29% | |
| EUR | 0.15% | -0.07% | -0.04% | 0.22% | 0.03% | -0.51% | -0.13% | |
| GBP | 0.23% | 0.07% | 0.04% | 0.29% | 0.10% | -0.43% | -0.05% | |
| JPY | 0.16% | 0.04% | -0.04% | 0.22% | 0.05% | -0.52% | -0.12% | |
| CAD | -0.07% | -0.22% | -0.29% | -0.22% | -0.19% | -0.73% | -0.34% | |
| AUD | 0.15% | -0.03% | -0.10% | -0.05% | 0.19% | -0.54% | -0.15% | |
| NZD | 0.69% | 0.51% | 0.43% | 0.52% | 0.73% | 0.54% | 0.38% | |
| CHF | 0.29% | 0.13% | 0.05% | 0.12% | 0.34% | 0.15% | -0.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.15% lower to near 100.900 even after recovering some of its early losses.
On Wednesday, United States (US) President Donald Trump said on the sidelines of the North Atlantic Treaty Organization (NATO) summit that our military forces might hit Iran again and would also attack the power and water infrastructure of the nation, if needed. The US attack on Iran’s infrastructure prompts fears that Middle East tensions could be prolonged, a scenario that will keep oil prices higher and global inflation projections de-anchored.
Meanwhile, the Federal Open Market Committee (FOMC) Minutes of the June policy meeting showed on Wednesday that officials are already concerned about upside inflation risks and several of them believe monetary conditions will tighten further.
On the Tokyo front, investors seek fresh cues regarding whether the Bank of Japan (BoJ) will raise interest rates again this year. The proposed revision in Japan’s annual economic policy blueprint by the government suggests that the central bank will continue on its gradual monetary tightening path.
According to Nikkei, the proposed revision underscores the BoJ’s independence while reaffirming its commitment to achieving stable inflation.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Chris Turner at ING highlights that EUR/USD has held up despite higher Oil, as Euro swap rates outperformed US rates on expectations of an ECB hike in September. However, he argues the Fed narrative will dominate, with EUR/USD likely to surrender gains and fall below 1.14. ECB minutes and energy prices should keep September hike expectations alive.
Resilience questioned as Fed dominates
"On the eurozone calendar today is the release of the ECB minutes for the 11 June meeting. We assume this will be pitched as hawkish and, combined with higher energy prices, keep expectations alive for a follow-up hike at the September meeting. That is currently priced at +22bp by money markets."
"EUR/USD has held up remarkably well given the jump in oil prices yesterday. Yield spreads did narrow in favour of the euro, where euro swap rates rose around 7-8bp more than short-dated US rates on the view that the ECB is more likely to pull the trigger on another hike in September."
"However, we think the Fed story will be a more dominant theme and can easily see EUR/USD handing back early gains today and sending the euro back below the 1.14 level."
"Could some of the EUR/USD resilience be down to President Trump mentioning Greenland again at the NATO conference? Remember that his threats back in January sparked a backlash against US asset markets from European investors. This link looks tenuous at best."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Japan's Chief Cabinet Secretary Minoru Kihara said during the European trading session on Thursday that the administration wants to secure market trust by stably lowering the government debt-to-GDP ratio.
Additional remarks
Government watching markets with very high sense of urgency.
Long-term interest rates are decided in markets based on various factors.
Market reaction
No immediate reaction was seen in the Japanese Yen (JPY) following remarks from Japan's Kihara. At press time, USD/JPY trades 0.17% lower at around 162.35.
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.
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