Japanese Yen strengthens amid BoJ hike bets, intervention risks; bullish USD cap gains

USD/JPY extends the overnight pullback from the weekly high, though the downside seems limited.
BoJ rate hike bets and looming intervention fears support the JPY, exerting pressure on spot prices.
Hawkish Fed, elevated US bond yields and geopolitical risks underpin the USD, limiting the downside.

The USD/JPY pair drifts lower during the Asian session on Thursday, extending the previous day's pullback from a one-and-a-half-week high, around the 158.50 region. Spot prices, however, remain confined in a familiar range and currently trade near the lower end of the weekly range, around the 157.85-157.80 region, down 0.15% for the day.

Análisis de TMGM: noticias de mercados financieros, calendario económico e información del mercado

Data released on Wednesday showed that Japan's real wages recorded growth for the eighth consecutive month in August. Moreover, hawkish comments from Bank of Japan (BoJ) board member Ayano Sato and Governor Kazuo Ueda reaffirmed expectations for more interest rate hikes. This, along with speculation that Japanese authorities will step in again to prop up the domestic currency, offers some support to the Japanese Yen (JPY) and exerts some downward pressure on the USD/JPY pair.

Meanwhile, the US Dollar (USD) retains its bullish undertone near the highest level since April 2025 amid a combination of supporting factors. Minutes of the September 15-16 FOMC meeting revealed that the committee voted unanimously to raise the federal funds rate target range, and most officials expect that another rate increase would likely be appropriate by the year-end to combat persistent inflation. Furthermore, elevated US bond yields act as a tailwind for the buck amid geopolitical risks.

In fact, the Pentagon reportedly told US Central Command (CENTCOM) several days ago to conclude preparations for resuming major combat operations in Iran as US President Donald Trump weighs a specific date for launching strikes. The US and Israeli sources said that US attacks could happen before the US midterm elections and possibly the Israeli elections a week earlier. This, in turn, might continue to benefit the safe-haven USD and help limit the downside for the USD/JPY pair.

Traders now look to the release of the usual Weekly Initial Jobless Claims data, which, along with speeches from influential FOMC members, will drive the USD. Apart from this, further developments surrounding the Middle East crisis might continue to infuse volatility across the global financial markets and contribute to producing short-term opportunities. Meanwhile, the fundamental backdrop warrants some caution before placing aggressive bearish bets on the USD/JPY pair.

USD/JPY daily chart

Technical Analysis

The USD/JPY pair continues its struggle to make it through the 158.50 confluence hurdle – comprising the 200-day Simple Moving Average (SMA) and the 50.0% Fibonacci retracement. This suggests that rallies remain capped by a dense band of overhead resistance despite the broader uptrend seen over recent weeks.

That said, a sustained move beyond the said barrier could lift the USD/JPY pair to the 61.8% level at 159.75, then 78.6% at 161.62 and the cycle high area at 164.00. On the downside, immediate support appears at the 38.2% retracement at 157.13, ahead of the 23.6% level at 155.51, while a deeper pullback would expose the structural floor around the Fibonacci anchor near 152.88.

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

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

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