Japanese Yen strengthens amid safe-haven flows, intervention speculation

• The Japanese Yen kicks off the new week on a positive note amid a combination of factors.
• Reviving safe-haven demand benefits the JPY amid renewed government intervention fears.
• A modest USD downtick further weighs on USD/JPY, though the downside seems cushioned.

The Japanese Yen (JPY) attracts some buyers at the start of a new week and recovers a part of Friday's post-Bank of Japan (BoJ) slump amid a combination of supporting factors. Concerns about rising tensions between the US and Venezuela, along with persistent geopolitical uncertainties stemming from Israel–Iran tensions and the protracted Russia-Ukraine war, drive safe-haven flows towards the JPY. Moreover, comments from Japan’s top foreign exchange official, Atsushi Mimura, fueled speculation about a possible government intervention to stem further JPY weakness and weigh on the USD/JPY pair.

Meanwhile, BoJ Governor Kazuo Ueda left the door open to further tightening, though he remained vague on the exact timing and pace of future rate hikes. Adding to this, concerns about Japan's worsening fiscal condition, aggravated by the recent steep rise in Japanese government bond (JGB) yields, could cap the upside for the JPY. The US Dollar (USD), on the other hand, preserves last week's recovery gains from its lowest level since early October on the back of hawkish comments from US Federal Reserve (Fed) officials, which could limit the USD/JPY pair's corrective pullback from the vicinity of the 156.00 mark.

Japanese Yen benefits from global flight to safety and intervention fears

• Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, said on Monday that he is concerned about one-way moves and warned of appropriate action against an excessive decline in the Japanese Yen.
• The US intercepted a Venezuelan oil tanker over the weekend and is in active pursuit of a third in less than two weeks. This comes after US President Donald Trump last week ordered a blockade of sanctioned tankers entering and leaving Venezuela.
• Israel's Prime Minister Benjamin Netanyahu said that officials are concerned that Iran is reconstituting nuclear enrichment sites and are preparing to brief Trump on options for attacking the missile program again, NBC News reported on Saturday.
• Russian President Vladimir Putin’s top foreign policy aide said on Sunday that changes made by the Europeans and Ukraine to US proposals did not improve prospects for peace. This contributes to driving safe-haven flows towards the JPY.
• The Bank of Japan, as was widely expected, raised its policy rate to 0.75%, or a 30-year high, at the end of the December meeting on Friday and reiterated that it would continue to hike rates if the economy and prices move in line with forecasts.
• In the post-meeting press conference, BoJ Governor Kazuo Ueda said that the central bank will closely look at the impact of the latest interest rate change, and the pace of monetary adjustment will depend on economic, price, and financial outlooks.
• Ueda, however, did not offer clarity on future hikes. Moreover, concerns about Japan's worsening fiscal health – led by a sharp rise in Japanese government bond yields and Prime Minister Sanae Takaichi's spending plan – might cap gains for the JPY.
• The recent hawkish comments from influential Federal Reserve officials pushed the US Dollar to a one-week high on Friday and should contribute to limiting any meaningful corrective slide for the USD/JPY pair, warranting caution for bears.
• In fact, Cleveland Fed President Beth Hammack said that monetary policy is in a good place to pause and assess the effects of 75 basis points (bps) of interest rate cuts on the economy during the first quarter, Bloomberg reported on Sunday.
• Traders, however, are still pricing in a greater possibility of two more interest rate cuts by the US central bank in 2026. This keeps a lid on a further USD appreciating move ahead of the delayed US Q3 GDP growth figures on Thursday.

USD/JPY technical setup backs the case for the emergence of dip-buying

Friday's breakout through the 156.95-157.00 horizontal barrier was seen as a fresh trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought zone. This, in turn, suggests that any subsequent fall is more likely to attract fresh buyers near the said resistance breakpoint. Some follow-through buying, however, could pave the way for deeper losses towards the 155.50 intermediate support en route to the 155.00 psychological mark. The latter should act as a key pivotal point, which, if broken, might shift the bias in favor of bearish traders.

On the flip side, bulls might await a sustained move beyond the 157.85-157.90 region, or the multi-month top, before placing fresh bets. The USD/JPY pair might then accelerate the positive move towards the next relevant hurdle near the 158.45 area before aiming to challenge the year-to-date, around the 159.00 neighborhood, touched in January.