Influencing Factors on 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. 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.

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.

MINISTRY OF ECONOMY, TRADE AND INDUSTRY (METI) – 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 the Forex market.

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.

NIKKEI – 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 such as EUR/JPY and GBP/JPY. A rising USD/JPY (rising dollar and a falling yen) could be a result of an appreciating GBP/JPY, rather than direct strength in the dollar. This rise in the cross rate could be highlighted due to contrasting sentiment between Japan and Great Britain.

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