Japanese Yen jumps as BoJ opens door to faster rate hikes

• The Japanese Yen strengthens sharply after comments supporting a more flexible approach to interest rate hikes in Japan.
• US employment data remains fragile, despite stronger-than-expected services activity in August.
• Investors reinforce expectations of Federal Reserve monetary easing ahead of the US employment report.

USD/JPY extends its decline for a second consecutive day and trades around 155.40 on Thursday at the time of writing, down 2.07% on the day. The pair comes under strong selling pressure as the Japanese Yen (JPY) benefits from both a more hawkish tone from the Bank of Japan (BoJ) and persistent concerns about a potential intervention by Japanese authorities in the foreign exchange market.

BoJ board member Hajime Takata said on Wednesday that the central bank should adopt a more flexible approach to future interest rate hikes. He argued that 2026 marks a structural change in the economic regime, notably driven by global growth and investments linked to artificial intelligence. Takata therefore believes that the BoJ should move beyond its traditional pace of raising rates every six months and consider a broader range of options rather than systematically limiting itself to 25-basis-point increases.

These comments reinforce expectations of further monetary policy tightening in Japan and support the Japanese Yen. Investors are now fully pricing in an interest rate hike at the BoJ's September 16-17 meeting.

The Japanese currency also benefits from the persistent risk of intervention in the foreign exchange market. Japan's top currency diplomat, Atsushi Mimura, reiterated on Thursday that authorities remain ready to intervene. He says he is "neither at ease nor satisfied" with current foreign exchange market conditions, while declining to say whether authorities have recently conducted rate checks with market participants. USD/JPY's recent move above the psychological 160.00 level had intensified speculation about a potential intervention.

On the US side, the US Dollar (USD) remains under pressure as the latest data continues to paint a mixed picture of the economy. The Automatic Data Processing (ADP) report released on Wednesday shows that the US private sector added only 38K jobs in August, compared with the 47K expected, reinforcing signs of a slowdown in the labor market.

Data released on Thursday nevertheless provides some more encouraging signals. Initial Jobless Claims rose slightly to 206K in the week ending August 29, compared with 204K previously and expectations of 205K. Continuing Jobless Claims also increased to 1.779M.

Services activity also proves stronger than expected. The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) rose to 55.4 in August from 54.1 in July, beating expectations of 54.3. New Orders accelerated sharply to 60.9, while the Employment Index edged higher to 47.8, although it remained below the 50 threshold separating expansion from contraction. Inflationary pressures also persist, with the Prices Paid Index climbing to 72.6 from 70.3 previously.

Despite the resilience of services activity, signs of weakness in the labor market keep the focus on the Federal Reserve's (Fed) monetary policy outlook. Investors now await Friday's Nonfarm Payrolls (NFP) report, which could provide further clues about employment conditions and determine whether the recent weakness in the US Dollar can persist.

USD/JPY technical analysis

In the daily chart, USD/JPY trades at 155.43, keeping a bearish near-term bias as spot remains below both the 100-day simple moving average (SMA) at 159.97 and the 200-day SMA at 158.46. The pair is attempting to stabilize after a sharp slide, but the Moving Average (100, close, 0) and Moving Average (200, close, 0) overhead reinforce a capped tone, while the Relative Strength Index (RSI) at 28.57 sits in oversold territory and hints that downside momentum could be stretched in the short term.

On the topside, initial resistance emerges at 156.00, ahead of the denser supply area defined by the 200-day SMA at 158.46 and the 100-day SMA at 159.97. On the downside, immediate support is located at 155.23, with further floors at 155.04 and 154.50; a decisive break under these levels would reopen the recent bearish leg, while a bounce from this cluster would merely be corrective as long as price holds beneath the major moving averages.

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