Japanese Yen consolidates vs recovering USD as intervention risks help limit losses
- USD/JPY bulls seem hesitant as intervention risks act as a tailwind for the Japanese Yen.
- Monday’s upbeat US ISM Manufacturing PMI and Fed hike bets lend support to the USD.
- Hopes for Iran diplomacy could cap the safe-haven buck ahead of US midterm elections.
The USD/JPY pair struggles to capitalize on the previous day's positive move, consolidating below the 158.00 mark during the Asian session on Tuesday amid mixed fundamental cues.
Traders remain on high alert amid fresh intervention warning from Japan's Finance Minister Satsuki Katayama on Monday, saying that the Joint FX statement with the US persists and that the government is prepared to act to curb excessive or disorderly weakness in the Japanese Yen (JPY). However, the uncertainty over the likely timing of the next rate hike by the Bank of Japan (BoJ) acts as a headwind for the JPY, which, along with a modest US Dollar (USD) uptick, offers some support to the USD/JPY pair.
The Institute for Supply Management (ISM) reported on Monday that its Manufacturing PMI rose from 54.5 in the previous month to 55.5 in October 2026, marking the 10th straight month of expansion. Furthermore, hawkish US Federal Reserve (Fed) expectations help the USD build on the overnight bounce from the late-October swing low. In fact, the CME Group's FedWatch Tool indicates that traders are pricing in over a 70% chance that the US central bank will raise borrowing costs again in December.
The upside for the USD, however, seems limited amid hopes for a potential diplomatic resolution to end the US-Iran war. In fact, US President Donald Trump said on Monday Iran wants to make a deal to end the war and that such an agreement could happen. Moreover, Iranian Foreign Minister Abbas Araqchi said that consultations through mediators were very intensive. Traders also demonstrate a widespread hesitancy ahead of US midterm elections, which could infuse volatility and influence the Greenback.
Meanwhile, the geopolitical risk premium remains in play as several days of negotiations between Iranian officials and Qatari mediators failed to make a major breakthrough despite revised proposals. This, in turn, favors USD bulls, backing the case for the emergence of some dip-buying around the USD/JPY pair. Traders now look to the release of the US JOLTS Job Openings data ahead of the US ISM Services PMI on Wednesday, though the focus will be on the US Nonfarm Payrolls (NFP) report on Friday.
USD/JPY 4-hour chart
Technical Analysis
The USD/JPY pair is consolidating marginally above the 100-period Simple Moving Average (SMA) on the 4-hour chart, which keeps the near-term bias mildly bullish. However, the recent range-bound price action makes it prudent to wait for a sustained break above the 158.60 barrier before positioning for any further gains. On the downside, the 157.00 mark could protect the immediate downside ahead of the trading range support near the 156.35 region. A convincing break below would shift the near-term bias in favor of bearish traders and pave the way for deeper losses.
(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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