Japanese Yen drifts lower as sustained USD buying offsets intervention fears
- USD/JPY regains positive traction on Tuesday as the USD sticks to its bullish undertone.
- Geopolitical uncertainties and elevated US bond yields continue to underpin the buck.
- Japan’s fiscal concerns weigh on the JPY, though intervention fears should limit losses.
The USD/JPY pair attracts some buyers following the previous day's two-day price moves, trading above the 158.00 mark during the early part of the European session on Tuesday. Spot prices await a breakout through the top boundary of a nearly one-week-old range before the next leg up amid the underlying strong bullish sentiment surrounding the US Dollar (USD).
In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, sits within striking distance of its highest level since April 2025 despite receding October Federal Reserve (Fed) rate hike bets and continues to act as a tailwind for the USD/JPY pair. The US macro data released last week pointed to moderating inflation and a slight cooling in the labor market. Moreover, crude oil prices hit a fresh four-week low as resilient Middle Eastern crude exports and a G7 emergency stockpile release eased supply concerns. This eases pressure on the Fed to raise interest rates.
Traders, however, are still pricing in over an 85% chance that the US central bank will raise borrowing costs by the end of this year. Moreover, persistent geopolitical uncertainties stemming from the ongoing conflicts in the Middle East and elevated US bond yields underpin the safe-haven buck. The Japanese Yen (JPY), on the other hand, is undermined by diminishing odds for more aggressive tightening by the Bank of Japan (BoJ). In fact, three sources familiar with the central bank’s thinking said that some BoJ policymakers remain cautious about another interest rate hike later this month.
Ueda keeps BoJ on gradual tightening path as Yen focus stays on inflation anchoring
FXS Speechtracker assigns the speech a 7.2/10 score, exactly in line with the speaker’s historic average, signaling a steady policy communication stance rather than a surprise shift. The emphasis on Japan’s economy “recovering moderately,” favorable business sentiment in the September Tankan, and accommodative financial conditions, even after the September rate hike, points to a mildly hawkish bias embedded in a gradualist framework that supports Yen resilience.
By stressing that underlying inflation is approaching 2% and that economy and prices are moving in line with baseline forecasts, the remark reinforces confidence that further rate hikes remain on the table. The commitment to continue raising the policy rate in accordance with economic, price, and financial developments, and the focus on anchoring inflation around 2%, underpin a constructive backdrop for Yen, with the speech supporting expectations of a slow but persistent normalization path from the Bank of Japan.
Moreover, market anxiety over Japan’s expansionary fiscal policies and massive public debt contributes to the JPY's relative underperformance, validating the near-term positive outlook for the USD/JPY pair. Bulls, however, remain on high alert amid speculations that Japanese officials will step in again to prop up the domestic currency. Traders might also opt to wait for more cues about the Fed's policy path before placing fresh directional bets. Hence, the focus remains glued to the release of the FOMC meeting Minutes, due on Wednesday, and speeches from influential FOMC members.
USD/JPY 4-hour chart
Technical Analysis
The USD/JPY pair maintains a bullish near-term bias above the 100-period Simple Moving Average (SMA) on the 4-hour chart and above key Fibonacci supports from the current swing. Spot prices consolidate just under the 61.8% Fibo. retracement at 157.47 and faces more meaningful topside pressure at the 78.6% retracement at 158.73.
On the downside, initial support is seen at the 100-period SMA at 156.99, reinforced by the 50.0% Fibonacci retracement at 156.58 and deeper structural floors at the 38.2% level at 155.70, the 23.6% level at 154.61, and the swing low anchor near 152.84.
(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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