USD/JPY Slides as JGB Yields Jump and BoJ Flags June Review

USD/JPY Drops as JGB Yields Rise and BoJ Cautions Ahead of June Policy Review

The USD/JPY currency pair saw early gains following affirmations from both the US and Japan to maintain current policies and a refusal to comment on FX levels. However, the pair reversed course as Japanese government bond (JGB) yields surged on the long end of the curve, prompting investor reaction.

According to BBH FX analysts, the yen firmed notably as bond market activity intensified and traders looked ahead to the Bank of Japan’s (BoJ) next policy move. BoJ board member Asahi Noguchi acknowledged the sharp rise in yields but emphasized that such movements are not necessarily abnormal, stating, "I can't just conclude that they are abnormal… so I think it would be inappropriate to intervene without reason."

Currently, the BoJ is reducing its JGB purchases by approximately ¥400 billion quarterly. While no immediate intervention is expected, the central bank confirmed it would revisit the bond-buying reduction schedule during its June 2025 Monetary Policy Meeting (MPM). With recent JGB volatility, analysts expect the BoJ to maintain the current pace while signaling readiness to step in temporarily to ensure market stability if needed.

This cautious tone by the BoJ underscores its delicate balancing act between normalization and market support, keeping the yen supported as uncertainty builds ahead of next month's decision.