USD/JPY climbs towards 160 on breakout as intervention concerns mount

A 10-week high of 159.80 has left USD/JPY close to the 160 intervention zone. The pair is now little changed, having broken out of its recent trading pattern in the previous session.

With headline US CPI increasing by 0.4% against a forecast of 0.3%, and core CPI rising by 0.3% rather than the expected 0.2%, inflation exceeded expectations. Together with hawkish signals from the Fed, the data have supported gains in the US dollar against its major peers.

Comments from Federal Reserve Governor Christopher Waller put a December rate increase of 50 basis points into consideration. In response, markets now fully price in a 25-basis-point rise next month and assign a 10% probability to a larger, 50-basis-point increase.

At 4.99% today, US Treasury yields remain elevated after jumping to 5% on Tuesday. Trading in the Treasury market was suspended yesterday for Veterans Day.

Expectations of further Fed rate rises, coupled with higher yields, continue to underpin the US dollar. The BoJ's lack of a firmly hawkish stance, meanwhile, has left the yen without clear direction.

Improving risk appetite has notably failed to dent the US dollar's resilience. A rebound in US shares saw the Nasdaq finish 1.6% higher.

Today's remarks from several Fed speakers, among them Hammack and Daly, will be scrutinised for indications of how quickly monetary policy may tighten. Also on the agenda are US jobless claims, forecast to remain subdued at 195K, ahead of tomorrow's US PPI release.

Yen comes under pressure as BoJ-Fed rate outlooks diverge

Dollar strength has taken a toll on the Japanese yen. Although BoJ Governor Kazuo Ueda has left further rate rises on the table since the central bank kept rates unchanged at its October meeting, the possibility of more forceful Fed tightening poses a risk. A renewed widening of the gap between US and Japanese interest rates could place additional downward pressure on the yen.

Further rate rises may be under consideration at the BoJ, but shifts in expectations for the Fed still hold sway over the yen.

As USD/JPY draws closer to 160, Japan's chief currency official, Atsushi Mimura, has raised concerns about the pace of exchange-rate movements over recent days. His warning was that intervention, as witnessed over the summer, should not be forgotten so soon.

Above 160, the tolerance of Japanese officials could be tested, potentially prompting stronger warnings. That threshold may mark the limit they are prepared to accept.

USD/JPY technical analysis: pair tests Fibonacci resistance after breakout

Trading at 159.75 at the time of writing, USD/JPY has cleared 159 after remaining confined since late September between an upper limit of 159 and support at 157.25. The advance has brought the pair to a test of the 61.8% Fibonacci retracement of its fall from the 164 high to the 152.90 low.

Momentum favours buyers, whose immediate aim will be to clear this resistance and challenge 160. That level was last tested in late August and could also prompt intervention by Japanese authorities. A move higher would put the 78.6% Fibonacci retracement at 161.60 in focus, with buyers then looking to the 2026 high of 163.99.

Should the pair fail to overcome the 61.8% Fibonacci retracement at 159.75, a pullback could bring tests of 159 and the 50% Fibonacci retracement at 158.44. Losing that support would direct attention towards 157.20, the bottom of the holding pattern. A breach of this lower boundary would confirm a downside breakout and bring 155.50 into view. This is the 23.6% Fibonacci level and an area that acted as support in July and May.