Japanese Yen edges higher as USD bulls seem hesitant amid Hormuz optimism

USD/JPY drifts lower as Hormuz optimism counters Fed hike bets and undermines the USD.
Japan’s fiscal woes and the wide US-Japan rate gap might cap the JPY and support spot prices.
Traders await the Tokyo CPI and Fed Chair Kevin Warsh’s speech on Friday for a fresh impetus.

Haresh Menghani FXStreet

The USD/JPY pair attracts some sellers during the Asian session on Thursday, snapping a three-day winning streak, though the downside potential seems limited. Spot prices currently trade above the 159.00 mark as the focus remains on Tokyo inflation data and the Jackson Hole Symposium on Friday.

In the meantime, the optimism over a potential US-Iran peace deal and the reopening of the Strait of Hormuz cap the slightly hot US inflation data-led US Dollar (USD) move up, exerting some pressure on the USD/JPY pair. Russian state media reported that the US and Iran have reached a new ceasefire deal that would be announced in the coming days. Another report said that Iran and Oman have agreed on commercial shipping routes through the Strait of Hormuz.

This offsets expectations for at least one interest rate hike by the US Federal Reserve (Fed) in 2026 and keeps USD bulls on the defensive. The US Commerce Department reported on Wednesday that the Personal Consumption Expenditures (PCE) Price Index rose 3.7% over the 12 months in July, unchanged from the previous month and slightly above consensus estimates. This points to still sticky inflation and backs the case for the Fed's policy tightening.

Hence, Fed Chair Kevin Warsh's speech on Friday will be scrutinized closely for more cues about the future policy path, which will play a key role in influencing the near-term USD price dynamics. The Japanese Yen (JPY), on the other hand, might struggle to attract any meaningful buyers amid concerns about Japan's worsening fiscal condition and the still wide US-Japan rate gap, despite bets for faster Bank of Japan rate hikes. This warrants caution for USD/JPY bears.

USD/JPY 4-hour chart

Technical Analysis:

The USD/JPY pair holds a constructive bullish tone above the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 38.2% Fibonacci retracement of the decline from a four-decade high. On the topside, immediate resistance is located at the 50.0% retracement at 159.63, followed by the 61.8% and the 78.6% Fibo. levels at 160.66 and 162.13, respectively, ahead of the cycle high zone near 163.99.

On the downside, initial support is seen at the 100-period SMA at 158.88, with deeper demand aligning at the 38.2% retracement at 158.60 and the lower Fibonacci floors at 157.33 and 155.27.

(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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