Japanese Yen Holds Near 5-Month High
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The Japanese yen traded near 149 per dollar on Thursday, hovering close to its strongest levels in five months.
This performance was driven by a combination of global and domestic factors, including dollar weakness, trade policy developments, and signals from the Bank of Japan (BoJ) regarding its monetary policy trajectory.
The yen’s strength was partly fuelled by a broad decline in the US dollar, which faced pressure from a strengthening euro and the repercussions of President Donald Trump’s tariff policies.
Trump’s decision to grant temporary tariff concessions for certain automakers, coupled with retaliatory measures from affected countries, weighed on the dollar.
These developments created a bearish environment for the US currency, benefiting the yen as a safe-haven asset.
Domestically, Bank of Japan Deputy Governor Shinichi Uchida indicated that the central bank could raise interest rates further if its economic forecasts are met.
Uchida emphasised that the BoJ’s exit from its extensive monetary easing program is still in its early stages, signalling a cautious but deliberate shift toward normalisation.
He also noted that monetary conditions remain highly accommodative, with the BoJ’s reduction in Japanese Government Bond (JGB) holdings being limited so far.
The BoJ’s approach reflects its balancing act between supporting economic growth and addressing inflationary pressures.
While the central bank has begun to reduce its JGB purchases, it has done so gradually to avoid destabilising the bond market.
This cautious stance aligns with the BoJ’s broader strategy of maintaining stability while gradually tightening monetary policy in response to improving economic conditions.
The yen’s resilience near its five-month high underscores its role as a safe-haven currency amid global uncertainties.
As the BoJ continues to navigate its monetary policy normalisation, the yen’s performance will likely remain sensitive to both domestic policy signals and external factors, such as trade tensions and dollar dynamics.
Source: Trading Economics