Japanese Yen drops to weekly low as elevated US bond yields lift USD to two-month high

• USD/JPY attracts some follow-through buyers during the Asian session amid a bullish USD.
• Oil-driven inflation risks keep US bond yields elevated and continue to underpin the buck.
• Intervention fears and BoJ rate hike bets could support the JPY and cap gains for the pair.

The USD/JPY pair builds on the previous day's bounce from the 156.40-156.35 region, or a one-and-a-half-week low, and gains strong follow-through traction during the Asian session on Thursday. The momentum lifts spot prices to a fresh weekly high, beyond the 158.00 mark, and is sponsored by the prevailing strong bullish sentiment surrounding the US Dollar (USD).

The softer-than-expected Personal Consumption Expenditures (PCE) report for August, released on Wednesday, tempered market bets for an October Federal Reserve (Fed) rate hike. The initial market reaction, however, turned out to be short-lived in the wake of an upward revision of the US Q2 GDP growth figures. Adding to this, oil-driven inflation risks keep US bond yields elevated near multi-year peaks, lifting the USD to a fresh high since July 28 and providing a goodish lift to the USD/JPY pair.

Apart from this, geopolitical uncertainties stemming from the US-Iran standoff turn out to be another factor underpinning the safe-haven buck. In fact, US President Donald Trump had turned down a seven-day ceasefire proposal from Iran. Moreover, US officials believe that Trump could order a return to major combat after the November midterm elections. In further developments, US Secretary of State Marco Rubio told the Iranian delegation to immediately leave the country after peace talks stalled.

Meanwhile, traders remain on high alert as authorities have intensified verbal interventions to signal Tokyo's strong determination to support the Japanese Yen (JPY). In fact, Japan's top currency diplomat Atsushi Mimura and Finance Minister Satsuki Katayama warned markets to take joint US-Japan messaging on FX depreciation seriously. Furthermore, expectations that the Bank of Japan (BoJ) will hike again as soon as October or December could limit JPY losses and cap the upside for the USD/JPY pair.

Traders now look forward to the US economic docket – featuring the usual Weekly Initial Jobless Claims and the ISM Manufacturing PMI. This, along with speeches from a slew of influential FOMC members and the incoming geopolitical headlines, will drive the USD. The focus, however, will remain glued to the release of the US Nonfarm Payrolls (NFP) report on Friday, which will be looked upon for more cues about the Fed's policy path and provide some meaningful impetus to the USD/JPY pair.

USD/JPY daily chart

Technical Analysis

The USD/JPY pair has been showing some resilience below the 38.2% Fibonacci retracement level, though it remains below the 100-day Simple Moving Average (SMA) and the key 61.8% Fibo. retracement confluence near the 159.55-159.75 area. Spot prices approach the 50.0% retracement at 158.45, which acts as the first topside pivot. A failure to reclaim this level keeps the pair capped within a corrective phase against the recent advance.

On the downside, initial support emerges at the 38.2% Fibo. retracement at 157.14, ahead of a deeper floor at the 23.6% retracement near 155.51. A sustained break below these levels would expose the structural anchor of the current cycle around 152.88.

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