Japanese Yen bears brush aside fresh intervention warning as less hawkish BoJ weighs on currency

USD/JPY opens the week higher, with uncertainty over the BoJ weighing on the JPY.
JPY bulls remain unmoved by an intervention warning from Japan's Finance Minister Satsuki Katayama.
USD faces pressure from hopes of diplomacy over Iran, potentially limiting further gains in the pair.

USD/JPY extends its recovery as the new week begins, reaching the 157.85 region in Asian trading despite a fresh intervention warning from Japan's Finance Minister Satsuki Katayama. The advance takes the pair further away from Friday's post-Bank of Japan (BoJ) swing low below 157.00.

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

Uncertainty about when the BoJ is likely to raise rates next leaves the Japanese Yen (JPY) without support from Katayama's comments. She said the Joint FX statement with the US remains in place and that the government stands ready to restrain excessive or disorderly Yen weakness. The lower-yielding JPY also remains under pressure from Japan's wide interest rate differential with other major economies, providing some backing for USD/JPY.

The safe-haven US Dollar (USD), however, faces pressure from hopes of a diplomatic breakthrough in the Middle East. Reports indicate that Iranian negotiators met Qatari mediators on Sunday for a third day of talks aimed at progressing towards a deal to end the US-Israeli war on Iran. Iran also put forward a 48-hour plan to reopen the Strait of Hormuz, conditional on the US meeting its demands. US President Donald Trump, meanwhile, said the negotiations were going fine and that Iran wanted an agreement.

Further military action after the November 3 midterm elections has not been ruled out, Trump added. At the same time, Iran's Supreme Leader, Mojtaba Khamenei, instructed his top military commanders to get ready for renewed confrontation with the US and Israel. New Ukrainian strikes on Russian oil refineries also sustain the geopolitical risk premium. Together with expectations of a US Federal Reserve (Fed) rate hike, these developments favour USD bulls.

The case for additional Fed tightening is supported by fears of inflation from elevated crude oil prices, alongside US macroeconomic figures released last Thursday that signalled economic resilience and persistent price pressures. Traders assign around a 75% probability to a December increase in US borrowing costs, according to the CME Group's FedWatch Tool. Against this backdrop, the USD and USD/JPY appear to face less resistance on the upside.

USD/JPY: 1-hour chart

Can USD/JPY Extend Its Near-Term Gains?

A modest bullish bias prevails in the near term as USD/JPY tests the 23.6% Fibonacci retracement at 157.80. Trading above the 100-period Simple Moving Average (SMA) at 157.75 also points to underlying buying interest on declines, with the pair moving towards the upper end of its recent retracement structure.

A decisive break above the cycle high anchor around 158.34, the next significant resistance, would pave the way for the broader uptrend to extend. On a pullback, the 23.6% Fibo. retracement at 157.80 offers immediate support. Further support lies at the 38.2% level near 157.47, followed by the 50.0% retracement at 157.21.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Japanese Yen: Common Questions

Which factors shape movements in the Japanese Yen?

Among the most actively traded currencies globally, the Japanese Yen (JPY) broadly reflects the performance of Japan's economy. More specific influences include the Bank of Japan's monetary 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 an important influence on the Yen. Direct intervention in currency markets has occasionally been used by the BoJ, usually to weaken the Yen. Such action is infrequent, however, given the political concerns of Japan's principal trading partners. Between 2013 and 2024, the BoJ's ultra-loose monetary policy weakened the Yen against its major peers as the policy gap between the Bank of Japan and other leading central banks widened. The more recent, gradual withdrawal of that ultra-loose stance has provided the Yen with some support.

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

By retaining an ultra-loose monetary stance over the last decade, the BoJ moved increasingly out of step with other central banks, most notably the US Federal Reserve. That divergence helped widen the yield gap between 10-year US and Japanese bonds, benefiting the US Dollar relative to the Japanese Yen. The differential is now narrowing as other major central banks cut interest rates and the BoJ follows through on its 2024 decision to gradually move away from ultra-loose policy.

Why does market risk sentiment influence the Japanese Yen?

During periods of market stress, investors are more inclined to move funds into the Japanese Yen because of its perceived reliability and stability. This reflects the currency's frequent status as a safe-haven investment. Consequently, turbulence is likely to lift the Yen against currencies regarded as riskier investments.