USD/JPY edges higher on strong US Dollar, Japan's fiscal challenges

• USD/JPY edges higher toward 157.20, supported by a firm US Dollar and ongoing weakness in the Japanese Yen.
• Japan’s fiscal concerns and uncertainty surrounding BoJ monetary policy continue to weigh on the domestic currency.
• Markets await the US NFP report, a key release for shaping Federal Reserve rate expectations.

USD/JPY trades higher on Thursday, around 157.20 at the time of writing, up  0.20% on the day. The pair has extended its upward momentum throughout the week, supported by a macroeconomic backdrop that continues to favor the US Dollar (USD) over the Japanese Yen (JPY).

The Japanese Yen remains under pressure amid growing concerns regarding Japan’s fiscal trajectory. The government recently proposed an additional budget of ¥25 trillion to finance Prime Minister Sanae Takaichi’s stimulus plan, a figure far above last year’s extra budget. 

This prospect of increased debt issuance has pushed borrowing costs to multi-decade highs and continues to undermine the JPY. Meanwhile, recent data showed that Japan’s economy contracted in the third quarter for the first time in six quarters, a development that could delay any rate hike by the Bank of Japan (BoJ).

Investors are also monitoring repeated warnings from Japanese authorities, who describe recent FX moves as “too rapid and one-sided.” Chief Cabinet Secretary Minoru Kihara stated on Thursday that he is watching markets with a “high sense of urgency.” However, as ING analysts pointed out, Japanese officials typically prefer to intervene after a USD-negative catalyst, which limits the immediate effect of these verbal warnings.

On the other side of the pair, the US Dollar remains supported by less dovish expectations toward the Federal Reserve (Fed). Minutes from the October FOMC meeting revealed on Wednesday a clear split among policymakers, with several members opposing another rate cut and warning that easing too quickly could risk persistent inflation.

This stance reinforces the US Dollar ahead of the delayed Nonfarm Payrolls (NFP) report for September due later in the day, a release that markets view as critical. According to ING, the US Dollar has “gone too far,” although only a notably weak NFP print could meaningfully reverse recent gains, especially as the Fed will not have access to October and November data ahead of its December meeting.

USDJPY Technical Analysis: The bull market rally is losing momentum

USD/JPY 4-hour chart. Source: FXStreet

In the 4-hour chart, USD/JPY trades at 157.20. It trades below the day opening price, down by 22 pips. The 100-period Simple Moving Average (SMA) rises and remains well below price at 154.33, reinforcing a bullish backdrop. Holding above this dynamic support keeps buyers in control. The 14-period RSI prints 74.73, overbought and easing from recent peaks. The rising trend line from 146.63 underpins the advance, offering support near 155.18.

With the 100-period SMA still sloping upward and price holding above it, the setup favors the uptrend. The Relative Strength Index (RSI) above 70 signals stretched conditions that could temper follow-through before the next leg. Immediate resistance aligns at 157.78, and a break higher would extend the rally, while failure to clear this barrier could prompt a corrective pullback.

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