Why did safe-haven demand weaken the US Dollar against the Japanese Yen despite its yield advantage?

Safe-haven buying has driven a sharp rise in the Japanese Yen (JPY) against the US Dollar (USD), with USD/JPY tumbling from the 158.20 area to intraday lows near 156.08. Lower US Treasury yields and a surge in geopolitical risk aversion have fuelled strong demand for the Yen. Despite retaining a broad yield advantage across most major currency pairs, the US Dollar faces pressure against the JPY from stronger Japanese inflation readings and robust private sector growth. For institutional strategists at UOB and BBH, the question is whether this steep decline into oversold territory is a tactical correction within the wider 155.00–160.00 trading range or the beginning of a deeper structural unwinding.

Could USD/JPY slide towards 156.00 and 155.50 as UOB flags downside momentum?

A sudden build-up in selling momentum is the focus for Quek Ser Leang and Lee Sue Ann at UOB, after USD/JPY broke below its recent 157.70–158.80 consolidation range and fell to 156.67. Despite deeply oversold short-term technical readings, the strategists anticipate further losses towards 156.00 before the pair stabilises. They now place strong resistance at the lower level of 157.30.

"In a sudden sharp move, USD plunged to a low of 156.67. The rapid increase in downward momentum suggests USD is likely to decline further. Support levels are 156.00 and 155.50. On the upside, a break above 157.80 would mean that USD is not declining further... While deeply oversold, the decline could extend to 156.00 before stabilisation can be expected."

Can JPY safe-haven inflows keep USD/JPY within BBH’s 155.00–160.00 range?

Investors turning to safety amid market volatility have put the Japanese Yen at the forefront of global currency gains, according to Elias Haddad at Brown Brothers Harriman (BBH). Stronger Japanese inflation readings (2.4% core CPI) and resilient PMI data (52.3) support the longer-term case for BoJ rate increases. However, with markets assigning only 2% odds to an October rate move, USD/JPY is expected to remain within the 155.00–160.00 range unless risk aversion deepens.

"JPY leads gains, underscoring its status as the ultimate refuge currency. Japan September CPI and October PMI back additional BOJ hikes... Nonetheless, the BOJ is unlikely to crank up the pace of tightening with headline and core CPI inflation tracking below its 2026 projection of 2.5%. The swaps curve price in just 2% odds of a 25bps BOJ rate hike to 1.50% on October 30, and 80% probability of a hike on December 18... That leaves USD/JPY likely to trade within a 155.00-160.00 range in the near term."

What does the sell-off signal for USD/JPY?

USD/JPY’s steep fall towards 156.08 highlights the US Dollar’s exposure to abrupt increases in safe-haven demand for the JPY and declining US Treasury yields, despite its broader macroeconomic dominance. According to UOB, technical momentum could pull USD/JPY down towards 156.00 and 155.50 in the near term. By contrast, BBH argues that the pair should retain firm structural support within the wider 155.00–160.00 trading band, as expectations for Bank of Japan tightening have largely shifted to December (80% probability).

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)