Tokyo’s consumer price index rose 2.6% year-on-year in August, up from 2.2% earlier

The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is largely determined by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the difference between Japanese and U.S. bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its actions are critical to the yen. The BoJ has at times intervened directly in currency markets, generally to devalue the yen, although it often refrains from doing so due to political concerns among its major trading partners. The BoJ’s current ultra-loose monetary policy, based on a massive stimulus to the economy, has caused the yen to fall against its major peers. This process has been exacerbated recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to raise interest rates sharply to combat multi-decade high inflation.

The BoJ’s stance of sticking to an ultra-loose monetary policy has led to a growing policy divergence with other central banks, particularly the US Federal Reserve. This supports a widening of the spread between the 10-year US and Japanese bonds, which favours the US dollar against 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 into the Japanese currency due to its perceived reliability and stability. Turbulent times are likely to strengthen the value of the Yen against other currencies that are seen as riskier to invest in.