Japanese Yen consolidates around 159.00 vs USD as bearish potential remains intact
- USD/JPY struggles for a firm intraday direction, though the downside remains cushioned.
- Japan’s fiscal woes and the wide US-Japan rate differential continue to undermine the JPY.
- Geopolitical risks support the USD, though receding Fed rate hike bets keep a lid on the pair.
The USD/JPY pair is seen oscillating in a narrow band just above the 159.00 mark during the Asian session on Tuesday, awaiting a fresh catalyst before the next leg of a directional move. Meanwhile, the fundamental backdrop seems tilted in favor of bulls and suggests that the path of least resistance for spot prices is to the upside.
The Japanese Yen (JPY) might continue with its relative underperformance amid worries over Japan's worsening fiscal condition due to surging long-term interest rates, a massive national debt burden, and expansionary budget pressures. Moreover, interest rates in Japan remain significantly lower than those in other major economies, which keeps the so-called JPY carry trade active. These, to a large extent, have offset the effect of a joint US-Japan currency intervention in late July and might continue to act as a tailwind for the USD/JPY pair.
Meanwhile, Treasury Secretary Scott Bessent announced Monday that the US is launching a campaign to isolate Iran from the global economy and warned that any country conducting business with Iran risks facing US sanctions. Iran's Supreme National Security Council secretary, Mohsen Rezaei, has already warned that the Islamic Republic would halt all oil exports through the Strait of Hormuz and anywhere else in the Persian Gulf if economic war continues. This keeps the war-risk premium in play and supports the US Dollar (USD).
Furthermore, inflation risks stemming from volatile oil prices underpin prospects for at least one interest rate hike by the US Federal Reserve (Fed) and act as a tailwind for the Greenback. Traders, however, seem hesitant to place aggressive bullish bets on the USD amid diminishing odds for an immediate Fed policy tightening. Adding to this, the US Treasury's bond market intervention failure revives fiscal sustainability concerns, which, in turn, are seen acting as a headwind for the buck and the USD/JPY, warranting some caution.
The market focus remains on the release of the US Personal Consumption Expenditures (PCE) Price Index on Wednesday. Adding to this, Fed Chair Kevin Warsh's speech at the Jackson Hole Symposium will be scrutinized closely for more cues about the future policy path. The outlook, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the USD/JPY pair.
USD/JPY 4-hour chart
Technical Analysis
The USD/JPY pair holds a mild bullish bias above the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement of the corrective decline from a four-decade high. Further up, resistance is seen at the 50.0% retracement at 159.59, followed by the 61.8% retracement at 160.62, with higher barriers at 162.09 and 163.96.
On the downside, initial support comes from the 100-period SMA at 158.67 and the nearby 38.2% retracement at 158.56, with a deeper floor at the 23.6% level around 157.28, where buyers would be expected to re-emerge if the current consolidation unwinds.
(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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