Japanese Yen advances on BoJ rate hike bets, subdued US Dollar
- USD/JPY falls as two months of accelerating Japanese inflation heightened expectations for a September BoJ rate hike.
- The US Dollar falls after the Treasury unexpectedly doubled long-dated debt buybacks to curb surging bond yields.
- Tensions rose as Iranian Foreign Minister Abbas Araghchi called upcoming US sanctions an act of desperation bound to fail.
USD/JPY extended its losses for the second straight day after intraday volatility, trading around 158.80 during Asian hours on Monday. The pair declines as the Japanese Yen (JPY) gains ground on stronger-than-expected inflation data, which accelerated for a second straight month. Rising price pressures bolster expectations that the Bank of Japan (BoJ) could raise interest rates as early as September, aligning with Governor Kazuo Ueda's recent hawkish comments on accelerating policy normalization.
Yen firms as Japan inflation data reinforce BoJ tightening expectations
Strategists at Scotiabank note that the latest Japan inflation release has “added marginally to conviction that the BoJ will tighten next month,” with “20bps or hikes reflected in swaps.” They add that the “price data helped lift the JPY to a 0.4% rise against the soft USD on the day,” underscoring how the market is increasingly aligning with the prospect of near-term policy tightening by the BoJ.
Additionally, the USD/JPY pair loses ground as the US Dollar (USD) struggles under pressure from newly announced United States (US) fiscal moves. The Treasury Department surprised financial markets by pledging to at least double its buybacks of longer-dated government debt in an attempt to rein in rising bond yields. Treasury Secretary Scott Bessent noted that buybacks could expand beyond $4 billion, a strategic effort aimed at signaling that elevated yields do not accurately align with underlying economic fundamentals.
However, the downside of the Greenback could be limited as safe-haven demand increases amid escalating geopolitical tensions in the Middle East. Tensions flared after Iranian Foreign Minister Abbas Araghchi dismissed upcoming US sanctions as an act of desperation that would fail to weaken Tehran. Adding to the friction, Iranian Security Chief Mohsen Rezaei warned of "earthquake-like" retaliation if US President Donald Trump takes further action, reinforcing risk-off sentiment in global markets.
Technical Analysis:
In the daily chart, USD/JPY trades at 158.80, keeping a bearish near-term tone as it remains below both the short-term and medium-term moving averages. The nine-period Exponential Moving Average (EMA) and the 50-period EMA sit overhead as immediate and secondary resistance, suggesting rallies are likely to be capped while price holds beneath this cluster. The 14-day Relative Strength Index (RSI) at 42.67 stays below the midline, hinting at subdued bullish momentum and reinforcing the downside bias rather than a decisive oversold condition.
On the topside, initial resistance is located at the nine-period EMA near 159.03, with further supply expected at the 50-period EMA around 160.13 if buyers attempt a recovery. With no nearby technical supports defined by the current dataset, the pair appears vulnerable to further slippage until a fresh demand area forms, leaving the immediate focus on how price reacts to the 159.03 barrier in upcoming sessions.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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