Forex Today: Japanese Yen rallies on reported intervention, US-Iran tensions remain high
Here is what you need to know on Friday, May 1:
The volatile action continues in financial markets early Friday even though major European markets remain closed in observance of the Labor Day holiday. In the second half of the day, the Institute for Supply Management (ISM) will publish the US Manufacturing Purchasing Managers' Index (PMI) data for April.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.31% | -0.69% | -1.91% | -0.74% | -0.90% | -0.47% | -0.69% | |
| EUR | 0.31% | -0.35% | -1.60% | -0.40% | -0.58% | -0.13% | -0.36% | |
| GBP | 0.69% | 0.35% | -1.19% | -0.04% | -0.22% | 0.22% | -0.00% | |
| JPY | 1.91% | 1.60% | 1.19% | 1.18% | 1.00% | 1.51% | 1.26% | |
| CAD | 0.74% | 0.40% | 0.04% | -1.18% | -0.12% | 0.33% | 0.05% | |
| AUD | 0.90% | 0.58% | 0.22% | -1.00% | 0.12% | 0.45% | 0.22% | |
| NZD | 0.47% | 0.13% | -0.22% | -1.51% | -0.33% | -0.45% | -0.22% | |
| CHF | 0.69% | 0.36% | 0.00% | -1.26% | -0.05% | -0.22% | 0.22% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Japanese Finance Minister Satsuki Katayama warned on Thursday that they were moving closer to taking a decisive action in the foreign exchange markets, as USD/JPY surged to its highest level since July above 160.70. During the European trading hours, the pair declined sharply, signalling a possible currency intervention. Citing two sources familiar with the matter, Reuters reported later in the day that Japan intervened for the first time in nearly two years to address the JPY weakness. Although there was no official confirmation, USD/JPY lost more than 2% on a daily basis on Thursday. After recovering above 157.00 in during the Asian trading hours on Friday, USD/JPY fell sharply again in the European morning and turned negative on the day below 156.50, pointing to a possible second intervention.
Iran's chief negotiator in talks with the US, Mohammad Bagher Ghalibaf, said it is "not posibble" for them to open the Strait of Hormuz because of "blatant violations of the ceasefire" by the US and Israel. Meanwhile, Iran’s President Masoud Pezeshkian called the US naval siege of Iranian ports is an "extension of military operations" and said that it is "intolerable." On the other hand, the Associated Press reported that US President Donald Trump is exploring options to end the Strait of Hormuz shutdown, while keeping the US blockade on Iranian ports in place and coordinating with allies to increase the consequences for Iran’s effort to disrupt the free movement of energy.
The European Central Bank (ECB) left its key rates unchanged following the April meeting, as anticipated. In the post-meeting press conference, ECB President Christine Lagarde acknowledged that risks to inflation are tilted to the upside and noted that policymakers debated at length an interest rate hike. Citing anonymous central bank sources, Reuters reported late Thursday that the ECB is expected to raise rates in June and opt for one more hike later in the year if Brent Oil prices held above $100 with the traffic in the Strait of Hormuz remaining disrupted. EUR/USD stays relatively quiet and trades in positive territory near 1.1750 after rising about 0.5% on Thursday.
The Bank of England (BoE) maintained its bank rate at 3.75%, as anticipated, but one member of the Monetary Policy Committee (MPC) voted in favor of a 25 basis points rate hike. BoE Governor Andrew Bailey made it clear that the current environment presents a difficult trade-off. Indeed, monetary policy cannot prevent the initial impact of higher global energy prices, but it must ensure that these shocks do not become embedded in wages and broader price-setting behaviour. GBP/USD gained nearly 1% on Thursday and continued to edge higher in the Asian session on Friday. At the time of press, the pair was trading at its highest level since mid-February near 1.3600.
The US Dollar (USD) Index fell 0.9% on Thursday, pressured by Japan's market intervention, combined with the BoE and ECB's hawkish tone. The USD Index holds steady at around 98.00 in the European morning on Friday, while US stock index futures trade marginally higher on the day.
Gold (XAU/USD) capitalized on the broad USD weakness and rose more than 1.5% on Thursday to snap a three-day losing streak. XAU/USD struggles to hold its ground early Friday and trades in negative territory below $4,600.
Japanese Yen FAQs
What key factors drive the Japanese Yen?
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
How do the decisions of the Bank of Japan impact the Japanese Yen?
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
How does the differential between Japanese and US bond yields impact the Japanese Yen?
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
How does broader risk sentiment impact 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 in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.