Japanese Yen weakens despite intervention warnings as USD/JPY rebounds near 158

• The Japanese Yen weakens after last week's sharp rally despite renewed intervention warnings from authorities.
• Japan's deteriorating fiscal outlook weighs on the Japanese currency and supports USD/JPY.
• Markets now await the US July employment report for fresh clues on the Federal Reserve's policy path.

USD/JPY trades around 157.95 on Tuesday at the time of writing, up 0.49% on the day. After the Japanese Yen's (JPY) sharp rebound driven by coordinated intervention from Japanese and US authorities in the foreign exchange market last week, investors are gradually shifting their focus back to underlying fundamentals, allowing the US Dollar (USD) to recover part of its recent losses.

Japan's Ministry of Finance confirmed that Tokyo and Washington conducted coordinated intervention to support the Japanese currency. Finance Minister Satsuki Katayama said authorities would not hesitate to intervene again if necessary. Meanwhile, US Treasury Secretary Scott Bessent stated that Washington remains prepared to cooperate in future interventions, while US President Donald Trump described the move as "a signal of friendship." According to Bloomberg, Japan is estimated to have spent around $34 billion on last week's intervention.

However, market attention is now turning toward Japan's fiscal outlook. The ruling Liberal Democratic Party (LDP) has backed a proposal to temporarily reduce the food consumption tax from 8% to 1% starting in April 2027, alongside roughly ¥600 billion in annual cash transfers for low- and middle-income households. The lack of a clearly defined funding mechanism has raised investor concerns, putting renewed pressure on the Japanese Yen.

Meanwhile, the interest rate differential continues to limit the Japanese currency's upside potential. Although the Bank of Japan (BoJ) raised its policy rate to 1% in June, borrowing costs remain well below those of other major economies, continuing to support carry trades and providing an additional tailwind for USD/JPY.

Investors are also monitoring geopolitical developments in the Middle East. While tensions between the United States (US) and Iran appear to have eased temporarily, conflicting statements from both sides continue to encourage a cautious market mood.

Attention now turns to US labor market data, with the Job Openings and Labor Turnover Survey (JOLTS) due later on Tuesday ahead of Friday's Nonfarm Payrolls (NFP) report. Economists expect the US economy to have added 83K jobs in July after 57K in June, while the Unemployment Rate is forecast to rise to 4.3% from 4.2%. Stronger-than-expected figures could reinforce expectations of a Federal Reserve (Fed) rate hike in September, providing additional support for the US Dollar.

Yen support seen as temporary with USDJPY downside limited

Analysts at MUFG note that the Yen has "weakened modestly during the Asian trading session," pushing USD/JPY "back up to within touching distance of the 200-day moving average at around 158.00 after hitting a low yesterday at 157.18." On the policy front, MUFG expects "US intervention to support the yen to remain relatively small in scale," and while they acknowledge that "joint intervention may prove more effective at helping to provide support for the yen in the near-term, we still believe that it can only buy time." In their view, "there will need to be a change in fundamentals as well to encourage a sustainable reversal of the yen weakening trend that has been in place over the last five years," with "more US pressure on Japan to allow a faster pace of BoJ policy normalization as part of the joint intervention arrangement" described as "an important step to help reverse yen weakness."

TD Securities takes a similar line on the durability of any downside move, arguing that "momentum could briefly push USDJPY lower to 153, but we do not expect the pair sustainably trading below it, absent BoJ and full US Treasury commitment." They stress that, "absent prolonged direct US involvement and more hawkish BoJ monetary policy, the combination of valuation, positioning, and trend-following modeling would suggest limited short-term USDJPY downside to 153.00," and reiterate that "in the absence of more hawkish BoJ monetary policy and prolonged direct US involvement to intervene JPY, the combination of valuation, positioning, and trend-following would suggest limited short-term USDJPY downside to 153.00, in our view." Their trend-following signals show that "USDJPY trend turned from uptrend to neutral, but it is not yet in downtrend," and, consistent with that assessment, TD Securities says, "for now, we maintain our year-end forecast of 159.00 for USDJPY."

USD/JPY technical analysis

In the one-hour chart, USD/JPY trades at 157.88, maintaining a capped tone as it holds below the 100-period Simple Moving Average (SMA) at 159.85 and the 200-period SMA at 161.78. The pair is edging higher above the broken rising trend-line reference at 157.72 and the 23.6% Fibonacci retracement at 157.30, yet the broader setup suggests rallies remain vulnerable while these key averages stay overhead, even as the Relative Strength Index (RSI) at 58.22 hints at moderately constructive short-term momentum.

On the topside, initial resistance is located at the 38.2% retracement at 158.58, followed by a more meaningful barrier at the 50.0% level at 159.61, just ahead of the 100-period SMA at 159.85. Further up, the 61.8% retracement at 160.64 and the 200-period SMA at 161.78 converge with the 78.6% level at 162.12 to define a dense supply zone. On the downside, immediate support is seen around the 157.72 trend-line break area, with the 23.6% retracement at 157.30 underpinning the move; a deeper slide would expose the Fibonacci anchor near 155.23 as the next significant floor.

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