Japanese Yen edges lower vs USD amid Middle East jitters as Fed, BoJ meetings loom
- USD/JPY gains some positive traction as Fed rate hike bets and Middle East tensions support the USD.
- A hawkish repricing of the BoJ’s tightening path should underpin the JPY and cap gains for spot prices.
- Traders might also opt to move to the sidelines ahead of the Fed and BoJ policy decisions later this week.
The USD/JPY pair attracts some buyers at the start of a new week and climbs closer to the 154.00 mark during the Asian session, reversing a part of Friday's losses. Spot prices, however, remain confined in a range held over the past week or so and within striking distance of a nearly seven-month low, touched last Tuesday, as traders await this week's key central bank events.
The US Federal Reserve (Fed) and the Bank of Japan (BoJ) are heading into high-stakes policy meetings on September 15–16 and September 17–18, 2026, respectively. The latest US inflation figures, released last week, reaffirmed market bets that the Fed will raise borrowing costs on Wednesday. Adding to this, a further escalation of tensions between the US and Iran supports the safe-haven US Dollar (USD), which, in turn, is seen as acting as a tailwind for the USD/JPY pair.
In the latest developments, Yemen’s Iran-backed Houthi fighters said that they used drones and missiles to attack a military base in southern Saudi Arabia. Moreover, an Iranian cargo vessel was struck early Sunday in the Strait of Hormuz, while a planned regional meeting between Gulf states and Iran regarding the Strait of Hormuz has been postponed. This keeps the geopolitical risk premium in play, which turns out to be another factor benefiting the safe-haven buck.
That said, a more hawkish repricing of the BoJ's policy tightening path might continue to underpin the Japanese Yen (JPY) and cap the upside for the currency pair. In fact, traders have fully priced in a 25-basis-point (bps) rate hike later this week and are assigning a high probability of a follow-up move in December. Expectations gained traction after BoJ's Kazuyuki Masu said last week that underlying inflation is approaching 2% and the policy rate is still below the neutral rate.
USD/JPY daily chart
Technical Analysis
The USD/JPY pair maintains a bearish near-term bias beneath the 38.2% Fibonacci retracement level and the 155.30-155.20 horizontal support breakpoint. Only a firm recovery back above the said area would begin to ease the current bearish pressure.
On the downside, immediate support is now located at the 50% retracement at 152.00, ahead of the deeper 61.8% level at 149.17. A sustained break under 149.17 would expose the 78.60% retracement at 145.14.
(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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