Japanese Yen holds near one-month top vs weak USD as traders await Fed, BoJ meetings

USD/JPY struggles to capitalize on an Asian session uptick, though the downside seems limited.
A divergent Fed-BoJ policy stance caps spot prices ahead of this week’s key central bank events.
Traders will further take cues from the release of the US Q3 GDP report and the PCE Price Index.

The USD/JPY pair attracts fresh sellers following an uptick at the start of a new week, stalling Friday's modest bounce from the vicinity of the 156.00 mark, or its lowest level since September 18. Spot prices seem vulnerable below the 157.00 mark, though bears might refrain from placing aggressive bets ahead of this week's key central bank events and data risks.

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

The US Federal Reserve (Fed) is scheduled to announce its decision at the end of a two-day policy meeting on Wednesday. The focus, however, will be on the accompanying rate statement and Fed Chair Kevin Warsh's comments during the post-meeting press conference. Apart from this, important US macro releases – the Advance Q3 GDP print and the Personal Consumption Expenditures (PCE) Price Index on Thursday – will influence market expectations about the Fed's future policy path and drive the US Dollar (USD). The market focus would then shift to the crucial Bank of Japan (BoJ) policy update on Friday, which should further determine the near-term trajectory for the USD/JPY pair.

In the meantime, Fed officials recently signaled that there is no urgency to raise interest rates at the upcoming policy meeting. Furthermore, the recent fall in US bond yields from multi-year highs keeps a lid on the attempted USD recovery from a three-week low, touched last Thursday. The Japanese Yen (JPY), on the other hand, draws support from BoJ Governor Kazuo Ueda's more hawkish comments last week, indicating that underlying inflation is nearing the 2% target, which strengthens the case for an imminent interest rate hike. This, in turn, might continue to act as a tailwind for the USD/JPY pair, though persistent geopolitical uncertainties could limit deeper losses for the safe-haven buck.

In the latest developments surrounding the Middle East crisis, US President Donald Trump has ruled out immediate military action against Iran. However, the Iran-backed Houthis in Yemen threatened on Sunday that they will keep attacking Saudi Arabia's King Khalid Airport in Riyadh. This comes on top of stalled US-Iran talks and keeps the geopolitical risk premium firmly in play. Apart from this, traders are still pricing in around an 80% chance that the US Fed will raise borrowing costs again in December. This, in turn, might hold back USD bears from placing aggressive bets and help limit the downside for the USD/JPY pair, warranting caution before positioning for any further downside.

USD/JPY 4-hour chart

Technical Analysis

The USD/JPY pair keeps a bearish near-term tone below the 200-period Simple Moving Average (SMA) on the 4-hour chart. The said barrier is pegged at 157.14 and is followed by the 23.6% Fibonacci retracement at 157.58. Only a sustained break above this band would reopen the path toward the recent cycle highs.

On the downside, immediate support aligns with the 38.2% retracement at 156.69, ahead of a deeper Fibonacci cluster at 155.98 and 155.26 (50% and 61.8%), where buyers may attempt to stabilize the pullback.

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

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.