The British pound remains on offer against the weak Japanese yen on Thursday. The pair’s reversal from a new 16-month high, just above 206.00, found support above its year-to-date high, in the 205.35 area, before returning to 205.75 at the time of writing.
The yen has seen selling against its major currencies over the past few days, as investor concerns about possible intervention by Japanese authorities eased and news reports emerged that Prime Minister Sanae Takaishi will prepare a large stimulus package.
Japanese Finance Minister Satsuki Katayama confirmed on Wednesday that she did not discuss foreign exchange issues in a meeting with BoJ Governor Kazuho Ueda, which traders took as a sign that Japanese authorities are comfortable with the yen’s current weakness.
Furthermore, recent news reports indicate that Prime Minister Takaishi will put together a 21 trillion yen (US$135 billion) stimulus package to help households cope with high inflation levels. This is likely to add pressure to already strained public finances and contribute to a sell-off in the Japanese yen.
In the United Kingdom, data released on Wednesday showed that consumer prices fell to 3.6% year-on-year in October, from a peak of 3.8% in the previous three months. These figures fuel hopes that the Bank of England may cut interest rates further in the coming months, putting some downward pressure on the pound.
(This story was corrected on November 20 at 12:30 GMT to say that the size of Japan’s stimulus package was 21 trillion yen (US$135 billion), instead of 20 billion US dollars, as previously reported.)
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most widely traded currencies in the world. Their value is determined broadly by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the spread between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the powers of the Bank of Japan is to control the currency, so its movements are key to the yen. The Bank of Japan has intervened directly in currency markets on occasion, generally to devalue the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The Bank of Japan’s ultra-loose monetary policy between 2013 and 2024 caused the yen to depreciate against its major counterparts due to the growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual dismantling of this ultra-lenient policy has given the yen some support.
Over the past decade, the Bank of Japan’s ultra-loose monetary policy stance has led to widening policy divergence with other central banks, especially the US Federal Reserve. This supported the widening of the spread between the US and Japanese 10-year bonds, which favored the US dollar against the Japanese yen. The Bank of Japan’s decision in 2024 to gradually abandon ultra-loose policy, along with interest rate cuts at other major central banks, are narrowing this spread.
The Japanese yen is often viewed as a safe investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency because of its supposed reliability and stability. Turbulent times are likely to strengthen the value of the yen against other currencies that are considered riskier to invest in.
to
