USD/JPY trims gains amid intervention risk and softer Greenback

• USD/JPY retreats toward 157.00 as Japan signals readiness to stabilise the Yen.
• Softer US Dollar lends additional support to the Yen amid a dovish Fed outlook.
• Markets look ahead to key US economic data releases due on Tuesday.

The Japanese Yen (JPY) trades firmer against the US Dollar (USD) on Monday, as Japanese officials stepped up verbal warnings against excessive currency moves, underscoring growing unease over the Yen’s recent weakness.

At the time of writing, USD/JPY trades near 156.95, easing back after climbing to near one-month highs on Friday following the Bank of Japan’s (BoJ) interest rate hike.

Over recent weeks, Japanese authorities have repeatedly signaled their readiness to act against “one-sided and excessive” currency moves. Speaking on Monday, Japan’s Finance Minister Satsuki Katayama said authorities are “absolutely ready” to take action, adding that Japan can act in line with the US-Japan joint accord and has a “free hand” to take bold measures to stabilise the Yen.

On the monetary policy front, the BoJ raised its policy rate by 25 basis points to 0.75%. Policymakers stressed that real interest rates are expected to remain significantly negative and that accommodative financial conditions will continue to support economic activity.

Looking ahead, the central bank said it will continue to raise the policy interest rate and adjust the degree of monetary accommodation if the outlook for economic activity and prices is realised, while keeping policy decisions data-dependent and aligned with developments in growth, inflation, and financial conditions.

Elsewhere, a softer US Dollar also offers a mild tailwind for the Yen on Monday, as dovish Federal Reserve (Fed) expectations keep the Greenback on the back foot. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 98.46, easing after climbing to a one-week high on Friday.

Markets are currently pricing in two rate cuts in 2026. However, policymakers remain divided on the need for further easing after delivering cumulative cuts of 75 basis points this year. Speaking on Monday, Fed Governor Stephen Miran said recent economic data should “push people in a dovish direction,” warning that failing to adjust policy lower could raise the risk of a recession. Miran added that he has yet to decide whether he would support a 25 or 50 basis point cut at the January meeting.

In contrast, Cleveland Fed President Beth Hammack, a 2026 FOMC voter, said in a Wall Street Journal interview on Sunday that she sees no need to adjust interest rates in the coming months, citing persistent inflation risks and suggesting the policy rate could remain in the 3.50%-3.75% range into the spring.

Attention now turns to a busy slate of US economic releases due on Tuesday, including the ADP Employment Change four-week average, the delayed preliminary Q3 Gross Domestic Product (GDP) report, Durable Goods Orders, Industrial Production, and the Conference Board’s Consumer Confidence survey.