The US Dollar retains its yield advantage but safe-haven demand drove it lower against the Japanese Yen

A fall in US Treasury yields, alongside a surge in geopolitical risk aversion, has prompted heavy safe-haven buying of the Japanese Yen (JPY) and a sharp reversal in the US Dollar (USD), with USD/JPY sliding from the 158.20 area to intraday lows near 156.08. Despite retaining a broad yield advantage across most major currency pairs, the US Dollar faces pressure against the JPY from stronger Japanese inflation readings and robust private-sector growth. For institutional strategists at UOB and BBH, the question is whether this steep decline into oversold territory is a temporary tactical retreat within the wider 155.00–160.00 trading range or the beginning of a more substantial structural unwinding.

USD/JPY faces further losses towards 156.00 and 155.50, UOB says

A sharp acceleration in selling pressure on USD/JPY is the focus of Quek Ser Leang and Lee Sue Ann at UOB. The move took the pair below its recent 157.70–158.80 consolidation range to 156.67. Despite deeply oversold short-term technical readings, the strategists anticipate further losses towards 156.00 before the pair stabilises. Strong resistance has meanwhile been revised down to 157.30.

"In a sudden sharp move, USD plunged to a low of 156.67. The rapid increase in downward momentum suggests USD is likely to decline further. Support levels are 156.00 and 155.50. On the upside, a break above 157.80 would mean that USD is not declining further... While deeply oversold, the decline could extend to 156.00 before stabilisation can be expected."

JPY safe-haven demand should keep USD/JPY in 155.00–160.00 range, BBH says

Safe-haven demand amid market volatility has put the Japanese Yen at the forefront of global currency gains, according to Elias Haddad at Brown Brothers Harriman (BBH). Japan's firmer inflation readings, including 2.4% core CPI, and resilient PMI figure of 52.3 strengthen the longer-term case for BoJ rate increases. However, with markets assigning only 2% odds to an October rate move, USD/JPY should remain within the established 155.00–160.00 range unless risk aversion deepens.

"JPY leads gains, underscoring its status as the ultimate refuge currency. Japan September CPI and October PMI back additional BOJ hikes... Nonetheless, the BOJ is unlikely to crank up the pace of tightening with headline and core CPI inflation tracking below its 2026 projection of 2.5%. The swaps curve price in just 2% odds of a 25bps BOJ rate hike to 1.50% on October 30, and 80% probability of a hike on December 18... That leaves USD/JPY likely to trade within a 155.00-160.00 range in the near term."

USD/JPY remains exposed to safe-haven flows

The retreat in USD/JPY towards 156.08 underlines the US Dollar's sensitivity to lower US Treasury yields and abrupt increases in safe-haven demand for the JPY, despite its broader macroeconomic dominance. In the assessment of UOB, technical momentum could push USD/JPY further down towards 156.00 and 155.50 in the near term. By contrast, BBH emphasises that expectations for Bank of Japan tightening have largely shifted to December, with an 80% probability, leaving the pair likely to find firm structural support within the wider 155.00–160.00 trading range.

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)