Japanese Yen retreats from one-month top vs recovering USD as focus remains on Fed and BoJ
- USD/JPY reverses Asian session losses to an over one-month low amid modest USD recovery.
- Geopolitical risks and hawkish Fed expectations help revive USD demand, supporting the pair.
- Japan’s National CPI reaffirms BoJ rate hike bets, limiting JPY losses and capping spot prices.
The USD/JPY pair rebounds from an over one-month low, around the 156.00 neighborhood touched during the Asian session earlier this Friday following the release of Japan's consumer inflation figures. Spot prices, however, struggle to capitalize on the move beyond the 157.00 mark and remain on track to register heavy weekly losses.
According to the latest data released by Japan's Statistics Bureau, the National Consumer Price Index (CPI) accelerated from the 1.9% YoY rate in the previous month to 2.1% in September. Adding to this, a core gauge, which excludes volatile fresh food prices, also rose by 2.1%, marking the strongest reading since December 2025. Furthermore, the core CPI that excludes both fresh food and energy prices jumped to a 10-month high of 2.5% during the reported month, giving the Bank of Japan (BoJ) more reasons to keep raising interest rates. This, in turn, provided a goodish lift to the Japanese Yen (JPY), though the initial market reaction faded rather quickly as a modest US Dollar (USD) recovery helped the USD/JPY pair to attract some dip-buyers at lower levels.
Despite the fact that Federal Reserve (Fed) officials recently pointed to no immediate urgency for a rate hike, traders seem convinced that the US central bank will raise borrowing costs again this year. In fact, the CME Group's FedWatch Tool indicates around an 80% chance of a rate hike in December. Adding to this, inflation risk stemming from elevated energy prices underpins prospects for additional Fed tightening. Apart from this, a further escalation of tensions in the Middle East keeps the geopolitical risk premium firmly in play, which revives demand for the safe-haven Greenback and acts as a tailwind for the USD/JPY pair. The upside, however, seems limited as traders now seem hesitant ahead of next week's key central bank events.
The Fed is scheduled to announce its rate decision at the end of a two-day monetary policy meeting on October 28, which will be followed by the highly anticipated Bank of Japan (BoJ) meeting on October 29-30. Traders will also confront the release of the Advance US Q3 GDP and the US Personal Consumption Expenditures (PCE) Price Index, due next Thursday, which will drive USD demand and provide some meaningful impetus to the USD/JPY pair. In the meantime, market players would remain on high alert amid speculation that any further JPY depreciation could trigger direct currency intervention from Japanese authorities. This might further contribute to capping the pair and warrants some caution for aggressive bullish traders.
USD/JPY daily chart
Technical Analysis
The USD/JPY pair holds below the 200-day Simple Moving Average (SMA) at 158.55, which keeps the near-term bias capped. Moreover, spot prices also sit under the 23.6% Fibonacci retracement at 157.56, suggesting that recent attempts to resume the broader uptrend are meeting overhead supply.
On the downside, initial support is seen at the 38.2% retracement at 156.68, followed by the 50.0% level at 155.98 and deeper Fibonacci floors at 155.27 and 154.26, while the swing low area around 152.97 marks a more distant structural base.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Bank of Japan FAQs
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%.
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.
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.
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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