Ministry of Finance
For Japan, the Ministry of Finance is the most important and highest ranking political and monetary institution. Its impact on the currency market is higher than its counterpart ministries in countries like the US, the UK or Germany. There have been gradual measures aimed at decentralizing decision-making. The Ministry officials make frequent statements on the economy which greatly affect the yen. Those statements also contain verbal intervention whose purpose is to avoid unwanted yen appreciation or depreciation.
Bank of Japan
The Bank of Japan became operationally independent from the government in 1998, when the country passed the respective laws. Thus the complete monetary policy control was transferred to the BoJ, and the MoF retained responsibility for foreign exchange policy.
Among interest rates, the overnight call rate constitutes the essential short-term interbank rate. It is controlled by open market operations conducted by the BoJ, whose goal is to manage liquidity. The call rate serves for signaling monetary policy changes that affect the currency.
Japanese Government Bonds
The 10-year and 20-year Japanese Government Bonds (JGB) are purchased by the BoJ on a monthly basis to add liquidity to the monetary system. The benchmark 10-year bond yield is the crucial indicator for long-term interest rates. The spread between 10-year JGB yield and US 10-year Treasury Note yield plays an important part in driving the USD/JPY exchange rate. When JGB yield rises, the result is typically appreciation of the yen, and vice versa.
Economic and Fiscal Policy Agency
That government agency has replaced the Economic Planning Agency, or EPA, since January 6, 2001. It bears the responsibility for the formulation of economic planning programs and for coordinating economic policies including employment, foreign exchange and international trade.
Ministry of International Trade and Industry
The Ministry is a government institution striving to support the interests of the Japanese industry. In addition, it defends Japanese corporations in maintaining their international trade competitiveness. Nowadays the MITI authority and transparency are not of such high level as in the periods of the 1980s to the early 1990s.
The Japanese economic data of highest importance for the JPY exchange rate are as follows: GDP; Tankan survey, which is a quarterly survey on business sentiment and expectations; international trade; industrial production; unemployment; money supply (M2+CDs).
That is the leading stock index for Japan. The overall stock index tends to be boosted by rising in export-oriented companies’ shares which is due to a moderate yen decline. Sometimes a reversal occurs in the Nikkei-yen relationship, as a strong open market for the Nikkei typically boosts the yen with investors’ funds transferring into yen-denominated shares.
Cross Rate Effect
For the USD/JPY exchange rate, movements in cross exchange rates, like EUR/JPY, sometimes have an impact. For example, when the USD/JPY rises, the reason could be appreciation in EUR/JPY, rather than a direct dollar increase. The cross rate appreciation could be focused on as Japan and the euro zone tend to have contrasting sentiments.