Less hawkish BoJ pressures Japanese Yen as bears dismiss renewed intervention warning

USD/JPY opens the week higher as uncertainty over the BoJ weighs on the JPY.
JPY bulls draw little encouragement from an intervention warning by Japan's Finance Minister Satsuki Katayama.
Hopes for diplomacy on Iran weigh on the USD and could limit further gains in the pair.

USD/JPY reaches the 157.85 region in Asian trading. The pair starts the week on a firmer footing, extending its recovery from Friday's post-Bank of Japan (BoJ) swing low below 157.00. A renewed intervention warning from Japan's Finance Minister Satsuki Katayama appears to have little impact on the advance.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The Joint FX statement with the US remains in place, Katayama said. She added that the government stands ready to counter excessive or disorderly Japanese Yen (JPY) weakness. Yet her comments provide no support for the JPY as uncertainty persists over when the BoJ will next raise interest rates. Japan's substantial interest rate gap with other major economies also weighs on the lower-yielding JPY, giving USD/JPY some support.

Prospects for Middle East diplomacy, by contrast, are weighing on the safe-haven US Dollar (USD). Reports indicate that Iranian negotiators met Qatari mediators for a third day on Sunday, seeking progress towards an agreement to end the US-Israeli war on Iran. Iran also put forward a 48-hour plan to reopen the Strait of Hormuz, conditional on the US meeting its demands. US President Donald Trump said negotiations were going fine and that Iran wanted a deal.

Further military action after the November 3 midterm elections remains an option, however, Trump added. Iran’s Supreme Leader, Mojtaba Khamenei, also instructed his top military commanders to ready themselves for renewed confrontation with the US and Israel. Fresh Ukrainian strikes on Russian oil refineries are meanwhile sustaining the geopolitical risk premium. Together with expectations of US Federal Reserve (Fed) rate increases, these developments support USD bulls.

Around a 75% probability of a December increase in US borrowing costs is priced in, according to the CME Group's FedWatch Tool. US macroeconomic figures published last Thursday indicated economic resilience alongside persistent price pressures. High crude oil prices are also fuelling inflation concerns, reinforcing expectations of further Fed tightening. Against this backdrop, the path of least resistance appears higher for both the USD and USD/JPY.

1-hour USD/JPY chart

157.80 Fibonacci Level in Focus: Technical Analysis

At 157.80, the 23.6% Fibonacci retracement is being tested by USD/JPY, with the near-term bias modestly bullish. The pair also remains above its 100-period Simple Moving Average (SMA) at 157.75. This points to underlying buying interest on dips as prices move towards the upper end of the recent retracement structure.

Around 158.34, the cycle high used as the retracement anchor marks the next significant resistance. A decisive break above it would clear the way for the broader uptrend to extend. Initial downside support lies at the 23.6% Fibonacci retracement of 157.80. Below that, the 38.2% level near 157.47 and the 50.0% retracement at 157.21 provide further support.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Japanese Yen: Key Questions

Japanese Yen: Main Market Drivers

Among the world’s most actively traded currencies, the Japanese Yen (JPY) broadly reflects Japan’s economic performance. More specific influences include Bank of Japan policy, the gap between Japanese and US bond yields, and traders’ appetite for risk, alongside other factors.

Bank of Japan Policy and the Japanese Yen

Currency control forms part of the Bank of Japan’s mandate, making its actions important for the Yen. Direct BoJ intervention in foreign exchange markets has occasionally sought to weaken the currency. Such action is infrequent, however, because of political concerns among Japan’s main trading partners. Between 2013 and 2024, the BoJ’s ultra-loose monetary stance drove Yen depreciation against its major peers as policy increasingly diverged from that of other leading central banks. More recently, a gradual withdrawal of this ultra-loose policy has provided some backing for the Yen.

Japanese and US Bond Yield Spreads: Implications for the Yen

By maintaining ultra-loose monetary policy over the past decade, the BoJ moved further apart from other central banks, especially the US Federal Reserve. That divergence helped widen the yield gap between 10-year US and Japanese bonds, supporting the US Dollar against the Japanese Yen. The spread is now narrowing as the BoJ gradually exits ultra-loose policy following its 2024 decision, while other major central banks cut interest rates.

Risk Sentiment and Demand for the Japanese Yen

During periods of market stress, investors are more inclined to allocate money to the Japanese Yen because of its perceived reliability and stability. This reflects the currency’s frequent status as a safe-haven investment. Turbulence therefore tends to lift the Yen against currencies regarded as riskier investments.