Japanese Yen holds range against USD with next week’s Fed, BoJ meetings in focus

Mixed fundamental signals leave USD/JPY struggling to establish meaningful momentum.
JPY bulls remain cautious as the timing of the next BoJ interest rate increase stays unclear.
Lower US bond yields weigh on the USD, but geopolitical risks and a hawkish Fed contain the decline.

USD/JPY remains steady above 158.00 in Thursday’s Asian session. Conflicting forces are prolonging the consolidation seen since the start of this month. Ahead of next week’s major central bank meetings, traders appear reluctant to take aggressive directional positions and are choosing to stay on the sidelines.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

On 28 October, the US Federal Reserve (Fed) is due to deliver its rate decision after a two-day monetary policy meeting. The closely watched Bank of Japan (BoJ) meeting follows on 29-30 October. Until then, the substantial US-Japan yield gap and the BoJ’s cautious approach are keeping Japanese Yen (JPY) bulls defensive, supporting USD/JPY. People familiar with the matter recently indicated that BoJ officials favour avoiding a rare back-to-back interest rate rise this month.

A December rate increase remains possible, judging by remarks from BoJ Governor Kazuo Ueda earlier this week that underlying inflation is quite close to the central bank’s 2% target. His comments, combined with speculation about intervention by Japanese authorities to support the domestic currency, discourage aggressive bearish JPY positions. Meanwhile, falling US bond yields have left the US Dollar (USD) near the three-week low reached on Tuesday. This adds to the constraints on any substantial USD/JPY advance.

Deeper USD declines are nevertheless being contained by growing expectations of another US central bank rate increase, as volatile oil prices fuel inflation concerns. Fears of further escalation in the Middle East also sustain the geopolitical risk premium. That provides additional support for the safe-haven dollar and restricts USD/JPY’s downside. A convincing breakout from the near-term trading range would therefore be prudent to await before positioning for the next directional leg.

USD/JPY: daily price chart

Technical Outlook

At 159.39, the 100-day Simple Moving Average (SMA) remains above USD/JPY. The pair also trades below 158.48, the mid-range 50.0% Fibonacci retracement of the latest move between 152.91 and 164.06. As long as spot prices remain beneath these overhead barriers, rallies appear vulnerable.

Clearing those barriers, however, should allow further gains towards the 61.8% Fibonacci retracement at 159.80. Subsequent resistance stands at 161.67, followed by the recent peak near 164.06. Initial downside support lies at 157.17, the 38.2% retracement. Below that, 155.54 provides a further cushion ahead of the structural floor around 152.91. A break beneath that floor would leave scope for a more substantial correction.

(An AI tool assisted in writing the technical analysis for this article. Find out more.)

Japanese Yen: Key Questions

Which factors shape the Japanese Yen’s value?

Among the world’s most actively traded currencies, the Japanese Yen (JPY) broadly reflects Japan’s economic performance. More specific influences include Bank of Japan policy, the gap between Japanese and US bond yields, and traders’ appetite for risk, alongside other factors.

Why do Bank of Japan decisions matter for the Japanese Yen?

Currency control forms part of the Bank of Japan’s mandate, making its actions important for the Yen. At times, the BoJ has intervened directly in foreign exchange markets, usually to weaken the currency. It avoids frequent intervention, however, because of political concerns among its main trading partners. Between 2013 and 2024, the BoJ’s ultra-loose monetary policy weakened the Yen against its major peers as its policy increasingly diverged from that of other leading central banks. More recently, the gradual withdrawal of that ultra-loose stance has provided some support for the Yen.

What does the US-Japan bond yield gap mean for the Japanese Yen?

By maintaining ultra-loose monetary policy over the last decade, the BoJ increasingly diverged from other central banks, most notably the US Federal Reserve. This helped widen the yield gap between 10-year US and Japanese bonds, favouring the US Dollar over the Japanese Yen. That gap is now narrowing following the BoJ’s 2024 decision to move gradually away from ultra-loose policy, alongside interest rate cuts by other major central banks.

Why does risk sentiment influence the Japanese Yen?

Investors often regard the Japanese Yen as a safe-haven investment. During periods of market stress, its perceived reliability and stability make them more inclined to place funds in the currency. Such turbulence is therefore likely to lift the Yen against currencies considered riskier investments.