Japan’s Kiuchi: CPI expected to gradually rise due to Middle East conditions

Economy Minister Minoru Kiuchi of Japan anticipates a gradual increase in consumer prices due to circumstances in the Middle East. The USD/JPY currency pair has experienced a slight decrease of 0.12% on the day, currently trading at 159.01. The Japanese Yen, one of the world's most traded currencies, is influenced by the performance of the Japanese economy, the Bank of Japan's policy, the differential between Japanese and US bond yields, and risk sentiment among traders.

The Bank of Japan, responsible for currency control, occasionally intervenes in currency markets to lower the Yen's value, though it rarely does so due to political concerns about its primary trading partners. The Bank of Japan's ultra-loose monetary policy from 2013 to 2024 contributed to the Yen's depreciation against its major currency counterparts due to increasing policy divergence between the Bank of Japan and other central banks.

Recently, the gradual winding down of this policy has provided some support to the Yen. Over the past decade, the Bank of Japan's adherence to ultra-loose monetary policy has resulted in a widening policy divergence with other central banks, particularly the US Federal Reserve. This divergence has been further exacerbated by the widening differential between the 10-year US and Japanese bonds, which has benefited the US Dollar against the Japanese Yen.

The Bank of Japan's decision to gradually abandon the ultra-loose policy, combined with interest rate cuts in other major central banks, is gradually reducing this differential. The Japanese Yen is often regarded as a safe-haven investment, meaning that during periods of market stress, investors tend to allocate their funds to the Japanese currency due to its presumed reliability and stability.

Turbulent times are likely to strengthen the Yen's value compared to other currencies viewed as riskier investments.