Japanese Yen softens as October BoJ hike bets fade; stuck in a range vs USD ahead of US CPI

USD/JPY attracts fresh buyers on Wednesday, though it remains confined in a familiar range.
Bulls seem hesitant amid speculation that Japanese authorities will step in to boost the JPY.
The market focus remains glued to US inflation figures and Fed Chair Kevin Warsh’s speech.

Haresh Menghani FXStreet

The USD/JPY pair edges higher on Wednesday, trading near mid-158.00s during the Asian session and within striking distance of the monthly high, touched last week. Spot prices, however, remain confined in a familiar range as traders now look forward to the US inflation figures for a fresh impetus.

The US Consumer Price Index (CPI) report is due for release later today and will be followed by the US Producer Price Index (PPI) on Thursday. Apart from this, traders will scrutinize US Federal Reserve (Fed) Chair Kevin Warsh's speech at the annual meetings of the IMF and World Bank in Bangkok on Friday for more cues about the future policy path. The outlook, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some meaningful impetus to the USD/JPY pair.

Meanwhile, traders are pricing in around a 90% chance that the US central bank will raise borrowing costs in December. This, along with persistent geopolitical uncertainties stemming from escalating Middle East conflict, helps limit the USD corrective pullback from an 18-month high, touched on Monday. The Japanese Yen (JPY), on the other hand, is pressured by reports that Bank of Japan (BoJ) officials are leaning against a rare back-to-back interest rate increase, further lending support to the USD/JPY pair.

Nevertheless, the BoJ is still expected to stick to its policy normalization path. Moreover, traders remain on high alert amid speculations that Japanese authorities will step in again to prop up the domestic currency. This, in turn, might hold back JPY bears from placing aggressive bets, backing the case for an extension of the USD/JPY pair's range-bound price action. The aforementioned fundamental backdrop, however, suggests that any corrective slide is more likely to be bought into and remain limited.

USD/JPY 4-hour chart

Technical Analysis

The USD/JPY pair maintains a bullish near-term bias above the 100-period Simple Moving Average (SMA) on the 4-hour chart. However, a move beyond a resistance marked by the top end of the short-term trading range, around 158.75 region, is needed to back the case for additional gains. On the downside, immediate support is located at the 100-period SMA at 157.93 ahead of the lower boundary of the range 157.60, which reinforces the broader constructive structure.

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

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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