Japanese Yen extends range play vs USD as focus remains on Fed, BoJ meetings next week
- USD/JPY continues with its struggle to gain any meaningful traction amid mixed fundamental cues.
- The uncertainty over the timing of the next BoJ interest rate hike keeps JPY bulls on the defensive.
- Falling US bond yields undermine the USD, though geopolitical risks limit losses amid a hawkish Fed.
The USD/JPY pair holds steady above the 158.00 mark during the Asian session on Thursday, extending its consolidative price action witnessed since the beginning of this month amid a combination of diverging forces. Traders now seem hesitant to place aggressive directional bets and opt to wait on the sidelines ahead of next week's key central bank events.
The US Federal Reserve (Fed) is scheduled to announce its rate decision at the end of a two-day monetary policy meeting on October 28, which will be followed by the highly anticipated Bank of Japan (BoJ) meeting on October 29-30. In the meantime, the wide US-Japan yield differential and the BoJ's cautious stance keep Japanese Yen (JPY) bulls on the defensive, acting as a tailwind for the USD/JPY pair. In fact, people familiar with the matter recently said that BoJ officials are leaning against a rare back-to-back interest rate increase this month.
Meanwhile, BoJ Governor Kazuo Ueda said earlier this week that underlying inflation is quite close to the central bank's 2% target, signalling scope for another rate increase as soon as December. This, along with speculation that Japanese authorities will step in to prop up the domestic currency, holds back JPY bears from placing aggressive bets. Meanwhile, the US Dollar (USD) languishes near a three-week low, touched on Tuesday, amid declining US bond yields. This further contributes to capping any meaningful upside for the USD/JPY pair.
That said, the growing acceptance that the US central bank will raise borrowing costs again amid inflation fears stemming from volatile oil prices helps limit deeper USD losses. Moreover, concerns about a further escalation of tensions in the Middle East keep the geopolitical risk premium in play, which further acts as a tailwind for the safe-haven buck and limits the downside for the USD/JPY pair. Hence, it will be prudent to wait for a convincing break through the short-term trading range before positioning for the next leg of a directional move.
USD/JPY daily chart
Technical Analysis
The USD/JPY pair remains below the 100-day Simple Moving Average (SMA) at 159.39 and the mid-range 50.0% Fibonacci retracement at 158.48 of the latest swing between 152.91 and 164.06. This suggests that rallies remain vulnerable while spot prices stay under these topside barriers.
That said, a move beyond the aforementioned barriers should pave the way for additional gains to the 61.8% Fibo. level at 159.80, with higher hurdles at 161.67 and the recent peak near 164.06. On the downside, first support emerges at the 38.2% retracement at 157.17, ahead of a deeper cushion at 155.54 and then the structural floor around 152.91, where a break would open the door to a more pronounced correction.
(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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