Japanese Yen edges lower from fresh monthly high against broadly weaker USD

• Falling US bond yields weigh on the USD, driving sharp selling in USD/JPY on Thursday.
• Expectations of a BoJ rate rise and intervention risks strengthen the JPY, accelerating the pair’s retreat.
• USD losses may be contained by geopolitical risks and hawkish Fed expectations, offering support to spot prices.

USD/JPY is down over 0.60% on Thursday. Heavy selling pushed the pair below short-term range support around the mid-157.00s to a fresh monthly low in early European trading. A recovery of a few pips over the past hour has since brought spot prices just above 157.00.

A further retreat in US bond yields from multi-year highs has sent the US Dollar (USD) to a three-week low and reduced the US-Japan interest rate differential. Recent comments from US Federal Reserve (Fed) officials indicated no urgency to increase rates at the forthcoming October 27–28 policy meeting. Meanwhile, increasingly hawkish signals from the Bank of Japan (BoJ) lend sizeable support to the lower-yielding Japanese Yen (JPY), adding to downward pressure on USD/JPY.

Expectations of an imminent December rate rise 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 alert for direct currency intervention by Japanese authorities, amid speculation that attempts to break the key psychological 160.00 level could prompt action. Technical selling following the break below 157.50 support adds to the pair's decline.

Concerns over a further escalation in Middle East tensions continue to sustain a geopolitical risk premium. According to The New York Times, the US and Israel have prepared plans for a brief but intensive military campaign against Iran after the US midterm elections. Iran's Foreign Minister, Abbas Araghchi, said the country was ready for diplomacy, while stressing its preparedness to defend itself. Together with expectations of a December Fed rate rise, these risks could underpin both the USD and USD/JPY.

Around a 90% probability of another US rate rise by year-end is now priced in by traders, according to the CME Group's FedWatch Tool. Inflation concerns linked to oil also support expectations of additional Fed tightening, potentially cushioning declines in the USD and USD/JPY. Ahead of next week's central bank events, traders may hold back from new directional positions. The FOMC decision is due on October 28, followed by the BoJ meeting on October 29-30.

USD/JPY: daily chart

USD/JPY Technical Outlook

The break below a short-term trading range during the session may provide a new trigger for bearish positions. A mildly negative near-term outlook also remains in place while USD/JPY trades beneath the 100-day Simple Moving Average (SMA) at 159.39 and the 50% Fibonacci retracement at 158.42. Sustained trading below the 38.2% retracement around 157.10 is nevertheless required to support further downside towards the 23.6% level near 155.47. A more pronounced decline would bring the structural floor around 152.83 into focus.

At 158.42, the 50% Fibonacci retracement provides the first upside resistance. Beyond that, the 100-day SMA at 159.39 and the 61.8% retracement at 159.74 define a wider supply zone. Further resistance stands at 161.61 and 164.00.

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