Japanese Yen drifts lower vs bullish USD after BoJ Minutes as intervention risks loom

USD/JP kicks off the new week on a positive note, reversing a part of Friday’s retracement slide.
The divergent Fed-BoJ policy stance continues to act as a tailwind for spot prices and favors bulls.
Fed hike bets and oil-driven inflation fears support elevated US bond yields, supporting the USD.

Haresh Menghani FXStreet

The USD/JPY pair attracts some dip-buyers at the start of a new week and climbs to the 157.75 area during the Asian session, reversing a part of Friday's retracement slide from the vicinity of a multi-week top. Spot prices stick to gains following the release of Bank of Japan (BoJ) Minutes and remain at the mercy of US Dollar (USD) price dynamics.

Against the backdrop of the US Federal Reserve's (Fed) hawkish outlook, energy-driven inflation fears underpin prospects for further policy tightening and keep US bond yields elevated near multi-year highs. Apart from this, geopolitical risks stemming from the US-Iran standoff help the safe-haven USD regain positive traction and remain close to its highest level since July 29, touched last Thursday. This, in turn, is seen as a key factor acting as a tailwind for the USD/JPY pair.

Meanwhile, the Japanese Yen (JPY) reacted little to the July BoJ meeting Minutes, which showed that members agreed financial conditions are accommodative and that firms are steadily passing on rising raw material costs, keeping inflation elevated. Even speculations that authorities will step in again to prop up the domestic currency fail to impress JPY bulls, suggesting that the path of least resistance for the USD/JPY pair is to the upside amid the BoJ's dovish-leaning tone.

Traders, however, might refrain from placing aggressive directional bets and opt to wait for further developments surrounding the Middle East crisis. Nevertheless, the fundamental backdrop seems tilted in favor of USD bulls and backs the case for an extension of the USD/JPY pair's recent well-established multi-week uptrend. Traders now look to speeches from influential FOMC members for short-term opportunities later during the North American session.

USD/JPY 4-hour chart

Technical Analysis

The USD/JPY pair reclaims the 23.6% Fibonacci retracement level after showing resilience below the 50-period Simple Moving Average (SMA) on the 4-hour chart. This points to the underlying demand and reinforces a constructive tone above the 50-SMA. The next notable resistance aligns with the cycle high anchor near 159.08, where a sustained break would open further upside.

On the downside, initial support is seen at the 23.6% Fibo. retracement at 157.62, followed by the 50-period SMA at 157.17, with deeper structural cushions at the 38.2% retracement at 156.71 and the 50.0% retracement at 155.98.

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

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Haresh Menghani

FXStreet

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

AUD/USD struggles below 0.7100, lowest since August 4 amid bullish USD

AUD/USD remains depressed below 0.7100 at the start of a new week, trading near its lowest level since August 4 amid a bullish US Dollar. US bond yields hold near multi-year highs amid inflation risks from higher oil prices and rising bets on a Fed rate hike in October. This, along with the US-Iran standoff, continues to underpin the safe-haven buck and weigh on the currency pair as traders now look to the RBA policy meeting on Tuesday.

USD/JPY climbs back to 157.75 after BoJ minutes amid firm USD

USD/JPY attracts some dip-buyers at the start of a new week, reversing part of Friday's slide driven by speculation that authorities will step in again to prop up the Japanese Yen. However, the BoJ's relative dovish-leaning tone caps the JPY. Meanwhile, the US Dollar regains traction as the US-Iran standoff supports crude oil prices, fueling inflation fears and reaffirming bets for an October Fed rate hike. This further support the pair.

Gold slides to $4,200 on Fed hike bets and Iran risks

Gold falls hard at the start of a new week, sliding back closer to $4,200 and the lower boundary of the monthly range. Firming October Fed rate-hike bets, along with oil-driven inflation risks, keep US bond yields elevated near multi-year highs, helping the US Dollar regain positive traction amid persistent Iran risks. These factors weigh heavily on the bullion.

Week ahead: Rate hike bets face a crucial data week

Despite the solid drop from the mid-September high, oil prices remained in the driver’s seat for another week, setting the tone in financial markets. Six months have passed since the late-February start of the US-Iran conflict, and there is still no breakthrough in the stalled talks, despite pressure from regional leaders and the rest of the world.

After the Trump Xi summit, markets are trading three clocks

The summit delivered time, not a deal. Trade, oil and chips now each run to a date, and the macro backdrop matters more than the pageantry. Markets wanted a deal and got a calendar date instead. Xi Jinping left Washington on Friday after tea at the White House and a tour of the National Archives.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.