Japanese Yen slides as Fed hawkishness, intervention fears grow

• USD/JPY gains 0.36% on Monday and holds above 157.00.
• The Fed's hawkish tone supports the US Dollar despite higher interest rates in Japan.
• A rate check conducted on Friday revives speculation about intervention by Japanese authorities.

USD/JPY extends its advance on Monday and trades around 157.45 at the time of writing, up 0.36% on the day. The pair remains close to recent highs as the Japanese Yen (JPY) continues to weaken despite monetary tightening by the Bank of Japan (BoJ), while concerns about a potential intervention by Japanese authorities in the foreign exchange market resurface.

The Japanese Yen remains under pressure following the strong rebound in the US Dollar (USD) observed last week. The Federal Reserve (Fed) raised its benchmark interest rate for the first time in three years, while Fed Chair Kevin Warsh delivered a more hawkish message than expected, prompting investors to increase bets on further rate hikes.

According to the CME FedWatch tool, markets now see a 53% chance of another 25-basis-point rate hike in October, up from 43% a week earlier. The chances of at least one additional hike by the end of the year have risen to 90% from 80%. These expectations keep US Treasury yields elevated and provide support to the US Dollar.

At the same time, the Bank of Japan raised its policy rate by 25 basis points to 1.25% on Friday, its highest level in 31 years. BoJ Governor Kazuo Ueda left the door open to further increases if economic activity and prices evolve in line with the central bank's projections. However, two members of the policy board called for greater patience before proceeding with additional tightening. These divisions are raising questions about how quickly the BoJ can continue normalizing monetary policy and are limiting support for the JPY for now.

The persistent weakness of the Japanese currency is also attracting the attention of authorities. The BoJ conducted a rate check with market participants on Friday, a move closely watched by investors because of its association with the risk of intervention in the foreign exchange market. A further rise in USD/JPY could therefore keep speculation about action by Japanese authorities alive.

The US Dollar Index (DXY), which measures the performance of the Dollar against a basket of six major currencies, trades around 100.35, not far from the seven-week high of 100.56 reached on Friday. A modest pullback in US Treasury yields is limiting the Greenback's advance, however, with the benchmark 10-year yield trading around 4.97% after reaching 5.04% last week, its highest level since 2007.

US Treasury yields nevertheless remain elevated as the war in the Middle East keeps inflation concerns alive and a geopolitical risk premium remains embedded in energy prices. US President Donald Trump said he would probably be open to meeting Iranian President Masoud Pezeshkian on the sidelines of the United Nations (UN) General Assembly this week.

Investors are also watching the summit between US President Donald Trump and Chinese President Xi Jinping, scheduled for September 23-25. Geopolitical developments, shifts in US interest-rate expectations and any fresh indications of a potential Japanese intervention are likely to remain the main drivers of USD/JPY in the near term.

USD/JPY technical analysis

In the one-hour chart, USD/JPY trades at 157.40, keeping a constructive bullish bias as it holds above the 100-period simple moving average (SMA) around 156.16 and the 200-period SMA near 155.10. The pair is consolidating just under the horizontal resistance at 158.00, while the Relative Strength Index (RSI) near 61 suggests positive but not extreme upside momentum, hinting that dips may still find buyers as long as price remains supported by these underlying averages.

On the downside, initial support emerges at the 156.50 horizontal level, followed by the 100-period SMA at 156.16, with a deeper cushion at 155.50 and the 200-period SMA around 155.10. On the topside, a clear break above 158.00 would open the door to further gains, reinforcing the current bullish tone as long as the pair stays comfortably above the clustered supports below.

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