Japanese Yen sticks to losses against bullish USD as traders await Fed, BoJ meetings loom
- USD/JPY attracts buyers for the second straight day, though the upside potential seems limited.
- Elevated US bond yields and geopolitical risks underpin the safe-haven USD, supporting the pair.
- A more hawkish repricing of the BoJ’s policy path could help limit JPY losses and cap spot prices.
The USD/JPY pair sticks to a positive bias for the second straight day and trades above mid-154.00s during the Asian session on Tuesday amid a broadly firmer US Dollar (USD). Spot prices, however, lack bullish conviction as traders seem hesitant ahead of this week's key central bank events.
The US Federal Reserve (Fed) and the Bank of Japan (BoJ) are scheduled to announce this policy decisions on Wednesday and Friday, respectively, amid firming expectations for an imminent rate hike. Hence, the focus will be on the central banks' policy outlook going forward, which, in turn, will play a key role in determining the next leg of a directional move for the USD/JPY pair.
In the meantime, a more hawkish repricing of the BoJ's policy normalization path might continue to underpin the Japanese Yen (JPY) and act as a headwind for the currency pair. However, the bullish sentiment surrounding the USD, bolstered by elevated US bond yields and persistent geopolitical uncertainties, might continue to lend some support to the USD/JPY pair and limit the downside.
Yen support builds as BoJ tightening expectations harden
Analysts at DBS note that speculative positioning has shifted meaningfully in favour of the Yen, with “speculators have unwound their short JPY positions following July’s joint US-Japan currency intervention and a shift in expectations towards further Bank of Japan tightening.” According to the bank, the policy debate has also moved, as “even former BoJ-tightening sceptics – including Takuji Aida, an economic adviser to Takaichi and a former vocal opponent of BOJ tightening – are now acknowledging the case for higher rates, strengthening expectations for a hawkish hike on September 18.”
Against the backdrop of rising Fed rate hike bets, inflationary concerns stemming from higher energy prices lift the yield on the benchmark 10-year US Treasury bond beyond the 5% threshold for the first time since 2023. Adding to this, the US-Iran standoff and the risk of a further escalation of tensions in the Middle East keep the safe-haven USD close to a nearly two-week high, set on Monday.
USD/JPY 4-hour chart
Technical Analysis
The USD/JPY pair is looking to build strength above the 154.60-154.65 confluence – comprising the 50-period Simple Moving Average (SMA) on the 4-hour chart and the 23.6% Fibonacci retracement. This comes on top of the recent recovery from 153.00s and suggests buyers are attempting to build a base, though the broader advance remains shallow against a dense band of overhead retracements.
On the topside, initial resistance is seen at the 38.2% Fibo. retracement at 155.74, followed by the 50.0% retracement at 156.62 and the 61.8% level at 157.50, with higher barriers at 158.76 and the cycle high region near 160.35. On the downside, immediate support is aligned at the 23.6% retracement at 154.65, reinforced by the 50-period SMA at 154.62; a break below this area would expose the next structural floor around 152.89.
(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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