The yen emerged as the strongest major currency on Thursday, with USD/JPY slipping toward 158.00 after closing at 158.45 the day before. Safe-haven demand and fresh cues from the Bank of Japan helped pull the pair lower.
Yen climbs as risk appetite wanes
Wednesday’s U.S. midterm results triggered a sharp sell-off in the dollar. USD/JPY dropped about 0.87 yen in an hour, reaching a weekly low of 157.38 before climbing back to 158.67 by evening. The brief rally faded as global equities recovered.
On Thursday, Asian trading opened with the pair near the previous close of 158.45. Hawkish minutes from the Bank of Japan gave the yen an early boost, and by 10:06 a.m. Hong Kong time it traded at 158.01, between its 50-period and 200-period moving averages.
The European session saw a modest bounce to 158.25 as U.S. jobless claims matched a 57-year low and Fed officials delivered hawkish remarks. When the Nasdaq slid 4.3%, the yen attracted further haven buying and the pair slipped back toward 158.00.
Each attempt to push the pair above the 200-day simple moving average at 158.65 has stalled, while dips toward 157.40 have found buyers. The range now reflects a tug-of-war between risk sentiment and the underlying policy gap.
BoJ minutes hint at faster hikes
Minutes from the September meeting released Thursday showed policymakers agreed the bank should keep raising rates and adjust monetary easing. The language reinforced market expectations of a December hike.
One member went further, saying the bank would need to speed up hikes if inflation overshoots expectations. This marks a shift from the decade-long focus on ending deflation to a discussion about the pace of normalisation.
Compared with the 2022 episode when the yen broke past 150 and interventions were triggered at lower levels, the current market respects a 160 ceiling that has held since August. The higher benchmark keeps traders cautious even as the yen strengthens.
The October decision left the policy rate at 1.25% after an 8-1 vote, with dissenting member Hajime Takata urging a move to 1.50%. The bank also declared core inflation had finally hit its 2% target, the first time in 13 years.
The interest-rate differential remains large.
Intervention history shows a clear ceiling. In April, when the pair hit 160.73, the Ministry of Finance and the bank intervened, dropping the rate by about 500 pips in a single session. A joint U.S.–Japan operation in July produced a similar reversal.
Finance Minister Satsuki Katayama has repeatedly warned of decisive action if the yen slides toward 160.
Intervention and its limitations
The rate gap between the US and Japan remains a significant factor in the yen’s weakness. With the Federal Reserve holding its benchmark rate at 3.75% to 4.00% and the Bank of Japan at 1.25%, the policy-rate differential of 250 to 275 basis points continues to fuel the carry trade. This makes it challenging for the yen to strengthen sustainably without a major shift in Fed policy.
The USD/JPY pair sits at 158.00, right in the warning zone, with verbal warnings from the Japanese government capping rallies above 158.65 to 159.
