Original Author: Mitrade News Team
Source: https://www.mitrade.com/insights/news/live-news/article-8-989883-20250727
Title: Japanese Yen Weakness Deepens Amid Rising US Treasury Yields and Bank of Japan Inaction
Overview
On July 27, 2025, the Japanese Yen continued to face downward pressure in global foreign exchange markets. Investors remained focused on the divergent monetary policies of the Bank of Japan (BoJ) and the US Federal Reserve. As bond yields in the US continued to rise in response to hawkish Fed expectations, the Yen weakened further, nearing critical support levels against major currencies like the US Dollar (USD). The market’s attention was also on the upcoming economic reports from Japan and the US, along with statements from central bank officials that could influence future monetary policy directions.
Key Developments Impacting the Japanese Yen
The performance of the Japanese Yen (JPY) in recent months has primarily been linked to a combination of global macroeconomic factors and the policy positioning of central banks.
1. Diverging Interest Rate Policies
– The US Federal Reserve has maintained a hawkish stance, keeping interest rates elevated in an effort to combat stubborn inflation.
– In contrast, the Bank of Japan continues to support an ultra-loose monetary policy that includes negative interest rates and yield curve controls.
– This divergence has increased capital flows into US assets, driving up demand for the USD while weakening the Yen.
2. Rising US Treasury Yields
– US 10-year Treasury yields rose further this week, reaching levels above 4.40 percent.
– Higher yields make US-denominated fixed-income assets more attractive, prompting selling of lower-yielding currencies like the Yen.
– The rate differential has widened substantially, leaving the JPY vulnerable to further depreciation.
3. Lack of BoJ Policy Response
– Despite the Yen’s continued weakening, policymakers at the BoJ have been hesitant to make significant adjustments.
– Market participants had anticipated some signaling or intervention from the BoJ, especially with the Yen approaching 160 per USD.
– However, the central bank reaffirmed its commitment to current monetary policies in its mid-July meeting, which further pressured the Yen.
4. Geopolitical Risks and Safe-Haven Status
– Typically considered a safe-haven currency, the Yen lost some of that appeal as geopolitical tensions failed to generate capital inflows into Japan.
– Global investors appear to prefer USD-denominated assets due to their higher yields, diminishing the Yen’s traditional role during periods of uncertainty.
Major Currency Pair Movements
USD/JPY
– The exchange rate between the US Dollar and the Japanese Yen soared this week, reaching an intraday high of 159.87 on Friday morning.
– Several technical analysts now view the 160.00 level as a critical resistance point. A breakout above this level could signal further downside for the Yen.
EUR/JPY
– The Euro gained strength against the Japanese Yen, supported by relatively strong economic data from the Eurozone and expectations for less dovish policy from the European Central Bank.
– The EUR/JPY pair climbed above the 174 mark, continuing its upward trend that began in early 2025.
AUD/JPY
– The Australian Dollar also appreciated against the Yen, boosted by firming commodity prices and Australia’s stable interest rate environment.
– The pair traded near 106.50, a level last seen over a year ago, pointing to broader Yen weakness rather than just strength in the AUD.
GBP/JPY
– The British Pound advanced to 206.70 against the Yen, its highest level since August 2008.
– Stronger-than-expected UK retail sales data and elevated inflation expectations in the UK added to Sterling’s bullish momentum.
Market Reactions from Traders and Analysts
Foreign exchange traders and financial analysts remain focused on central bank policy signals and inflation expectations.
Read more on EUR/USD trading.