Near one-month high: Japanese Yen stays firm against weak USD ahead of Fed, BoJ meetings

An Asian-session rise in USD/JPY fails to gain traction, although further losses appear limited.
Ahead of this week’s major central bank decisions, diverging Fed-BoJ policy positions constrain spot prices.
The US Q3 GDP report and PCE Price Index will provide additional direction for traders.

Below 157.00, USD/JPY appears vulnerable. Renewed selling after an early-week rise has halted Friday’s modest recovery from around 156.00, its lowest level since 18 September. However, this week’s major central bank events and economic releases may discourage bears from taking aggressive positions.

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

Wednesday brings the US Federal Reserve’s (Fed) decision following its two-day policy meeting. Markets will pay particular attention to the accompanying rate statement and remarks by Fed Chair Kevin Warsh at the subsequent press conference. Thursday’s Advance Q3 GDP reading and Personal Consumption Expenditures (PCE) Price Index will also shape expectations for the Fed’s policy trajectory and influence the US Dollar (USD). Attention will then turn to Friday’s crucial Bank of Japan (BoJ) policy update, which should provide further direction for USD/JPY in the near term.

Recent signals from Fed officials suggest no urgent need to increase interest rates at the forthcoming meeting. Meanwhile, US bond yields have retreated from multi-year highs, restraining the USD’s attempted rebound from the three-week low reached last Thursday. Support for the Japanese Yen (JPY) comes from BoJ Governor Kazuo Ueda’s more hawkish remarks last week. His indication that underlying inflation is approaching the 2% target reinforces the case for an imminent rate increase. These factors could continue to support USD/JPY, although ongoing geopolitical uncertainty may cushion the safe-haven dollar against deeper declines.

US President Donald Trump has ruled out immediate military action against Iran in the latest developments in the Middle East crisis. On Sunday, however, Yemen’s Iran-backed Houthis threatened to continue attacking Saudi Arabia’s King Khalid Airport in Riyadh. Together with stalled US-Iran talks, this keeps the geopolitical risk premium firmly in place. Traders also continue to price in around an 80% probability of another increase in US Fed borrowing costs in December. That could discourage aggressive bearish USD positions and contain USD/JPY losses, suggesting caution before positioning for a further decline.

4-hour chart: USD/JPY

Near-Term Technical Outlook

Trading below its 200-period Simple Moving Average (SMA) on the 4-hour chart leaves USD/JPY with a bearish near-term bias. Resistance at this moving average stands at 157.14, followed by the 23.6% Fibonacci retracement at 157.58. A sustained move above this zone would be needed to clear the way back towards the recent cycle highs.

Initial support sits at the 38.2% retracement of 156.69. Below that, buyers may seek to contain the pullback around the deeper Fibonacci cluster at 155.98 and 155.26, corresponding to the 50% and 61.8% retracements.

(An AI tool assisted in preparing this story’s technical analysis. Find out more.)

Japanese Yen: Key Questions Answered

Japanese Yen: Main Drivers

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.

Bank of Japan Policy and the Yen

Currency control is one of the Bank of Japan’s mandates, making its actions important for the Yen. At times, the BoJ has intervened directly in foreign exchange markets, usually to weaken the currency. Political concerns among Japan’s main trading partners, however, discourage frequent intervention. Between 2013 and 2024, the BoJ’s ultra-loose monetary policy weakened the Yen against major peers as its policy increasingly diverged from that of other leading central banks. The subsequent gradual withdrawal of that policy has provided the Yen with some support.

Japan-US Bond Yield Gap and the Yen

By maintaining ultra-loose monetary policy over the last decade, the BoJ increasingly diverged from other central banks, especially the US Federal Reserve. That helped widen the yield gap between 10-year US and Japanese bonds, supporting the US Dollar against the Japanese Yen. The gap is now narrowing as the BoJ gradually withdraws its ultra-loose policy following its 2024 decision, while other major central banks cut interest rates.

Risk Sentiment and Safe-Haven Yen Demand

Investors often regard the Japanese Yen as a safe haven. During periods of market stress, its perceived reliability and stability make them more likely to allocate money to the currency. As a result, turbulence is likely to lift the Yen against currencies considered riskier investments.