Japanese Yen Eases From Fresh Monthly High Against Broadly Weaker USD

• Falling US bond yields weigh on the USD, leaving USD/JPY under heavy selling pressure on Thursday.
• Expectations of a BoJ rate rise and the risk of intervention lend support to the JPY, adding to USD/JPY’s sharp fall.
• The USD could find support from geopolitical risks and hawkish Fed expectations, potentially cushioning the decline in spot prices.

Down over 0.60% on the day, USD/JPY is trading just above 157.00 after recovering a few pips over the past hour. Heavy selling on Thursday pushed the pair below support at the mid-157.00s, the lower boundary of its short-term trading range, taking it to a fresh monthly low in early European trading.

With US Federal Reserve (Fed) officials recently signalling no urgency to raise interest rates at the forthcoming October 27–28 policy meeting, US bond yields have continued to retreat from multi-year highs. The decline has narrowed the US-Japan interest rate differential and pulled the US Dollar (USD) to a three-week low. At the same time, increasingly hawkish signals from the Bank of Japan (BoJ) have given the lower-yielding Japanese Yen (JPY) a sizeable boost, adding to the pressure on USD/JPY.

Expectations of an imminent interest rate rise in December strengthened after BoJ Governor Kazuo Ueda said earlier this week that underlying inflation was approaching the central bank’s 2% target. Traders are also on high alert over speculation that attempts to move through the key psychological level of 160.00 could prompt direct currency intervention by Japanese authorities. Technical selling following the break below support at 157.50 has compounded USD/JPY’s decline.

Concern over a further escalation of Middle East tensions continues to sustain the geopolitical risk premium. According to The New York Times, the US and Israel have prepared plans for a brief but intense military campaign against Iran following the US midterm elections. While stating that Iran was ready for diplomacy, Foreign Minister Abbas Araghchi also stressed the country’s readiness to defend itself. Together with expectations of a December Fed rate rise, these developments could underpin the USD and USD/JPY.

Traders now assign around a 90% probability to another increase in US borrowing costs before the end of this year, according to the CME Group’s FedWatch Tool. Inflation concerns linked to oil prices also reinforce expectations of further Fed tightening, potentially limiting the downside for the dollar and USD/JPY. With next week’s central bank events approaching, traders may hold back from taking fresh directional positions: the FOMC decision is due on October 28, followed by the BoJ meeting on October 29-30.

USD/JPY daily price chart

USD/JPY Retains a Mildly Bearish Technical Bias

A fresh bearish trigger may have emerged from the intraday break below the short-term trading range. Trading beneath both the 100-day Simple Moving Average (SMA) at 159.39 and the 50% Fibonacci retracement at 158.42 leaves USD/JPY with a mildly negative near-term bias. Sustained trading below the 38.2% retracement around 157.10 would nevertheless be required to strengthen the case for a further decline towards the 23.6% level near 155.47. Beyond that, a deeper retreat would bring the structural floor around 152.83 into view.

Any recovery would first encounter resistance at the 50% Fibonacci retracement near 158.42. Above this, the 100-day SMA at 159.39 and the 61.8% retracement at 159.74 define a broader supply zone, before further hurdles at 161.61 and 164.00.

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