Factors Affecting USD/JPY

Ministry of Finance: The MoF is the single most important political and monetary institution in Japan. Its influence in guiding the currency is more significant than the ministries of finance of the US, UK or Germany, despite the gradual measures to decentralize decision-making. MoF officials often make statements regarding the economy that have notable impacts on the yen. These statements include verbal intervention aimed at avoiding undesirable appreciation/depreciation of the yen. Key officials most likely to move the market are the following:

Masajuro Shiokawa, Finance Minister
Haruhiko Kuroda, Vice-Minister for International Affairs
Zembei Mizoguchi, Head of MoF’s International Bureau
Eisuke Sakakibara, Former Vice-Minister of International Aaffairs. Also dubbed as "Mr. Yen" for his ability to move the currency with his statements. Although Mr. Kuroda has succeeded him, Mr. Sakakibara can still come forward and give market-moving statements.

Bank of Japan (BoJ). In 1998, Japan passed new laws giving the central Bank (BoJ) operational independence from the government (MoF). While complete control over monetary policy has shifted to the BoJ, the MoF remains in charge of foreign exchange policy.

Toshihiko Fukui: BoJ Governor.

Interest Rates: The Overnight Call Rate is the key short-term interbank rate. The call rate is controlled by the BoJ’s open market operations designed to manage liquidity. The BoJ uses the call rate to signal monetary policy changes, which impact the currency.

Japanese Government Bonds (JGBs): The BoJ buys 10 and 20-year JGBs every month to inject liquidity into the monetary system. The yield on the benchmark 10-year JGB serves as key indicator of long-term interest rates. The spread, or the difference between 10-year JGB yields and those on US 10-year treasury notes, is an important driver of the $/JPY exchange rates. Falling JGBs (rising JGB yields) usually boost the yen and impact USD/JPY.

Agency of State for Economic and Fiscal Policy: Officially replaces powerful Economic Planning Agency (EPA) on January 6, 2001. Agency responsible for formulating economic planning programs and coordinating economic policies including employment, international trade and foreign exchange.

Heizo Takenaka: Minister

Ministry of Economy, Trade and Industry (METI): The once influential Ministry of International Trade and Industry (MITI) has been renamed to the Ministry of Economy, Trade and Industry. It is the Government institution aimed at supporting the interests of Japanese industry and defending international trade competitiveness of Japanese corporations. METI’s power and visibility is not as significant as it used to be in the 1980s and early 1990s, when US-Japan trade issues were the “hottest” topics in FX markets.

Takeo Hiranuma: Minister

Economic Data: The most important economic data items from Japan are: GDP; Tankan survey (quarterly business sentiment and expectations survey); international trade; unemployment; industrial production and money supply (M2+CDs).

Nikkei-225: Japan’s leading stock index. A reasonable decline in the yen usually lifts stocks of export-oriented companies, which tends to boost the overall stock index. The Nikkei-yen relationship is sometimes reversed, wherein a strong open market in the Nikkei tends to boost the yen (weighs on USD/JPY) as investors’ funds flow into yen-denominated stocks.

Cross Rate Effect: The USD/JPY exchange rate is sometimes impacted by movements in cross exchange rates (non-dollar exchange rates) such as EUR/JPY. To illustrate: A rising USD/JPY (rising dollar & a falling yen) could be a result of an appreciating EUR/JPY, rather than direct strength in the dollar. This rise in the cross rate could be highlighted due to contrasting sentiment between Japan and the Eurozone.

Another example: Both EUR/JPY and EUR/USD rally because of a general strengthening in the euro. For some particular factors (such as better prospects in Japan), this could have a larger impact on the dollar than it does on the yen. As a result, USD/JPY weakens since the yen is relatively less hurt by the appreciating euro.