Japanese Yen stands near one-week high vs. weaker USD; seems poised to climb further
- Japanese Yen remains on the front foot against a bearish USD for the second straight day.
- The removal of political uncertainty and hawkish BoJ expectations lends support to the JPY.
- The intervention risk backs the case for further JPY upside amid a bearish USD sentiment.
The Japanese Yen (JPY) retains bullish bias for the second straight day and trades near its highest level in over a week against a broadly weaker US Dollar (USD) during the first half of the European session on Tuesday. The outcome of Japan's snap election on Sunday removes political uncertainty, which, along with intervention warnings by Japanese authorities and bets that the Bank of Japan (BoJ) will stick to its policy normalization path, acts as a tailwind for the JPY.
Meanwhile, the ruling Liberal Democratic Party's (LDP) landslide victory in the lower house strengthens Prime Minister Sanae Takaichi's authority to push through her ambitious fiscally expansionary policies. This adds to concerns about Japan's already strained public finances. Apart from this, the upbeat market mood contributes to capping the safe-haven JPY. The negative factor, however, is offset by the bearish USD, which fails to provide any respite to the USD/JPY pair.
Japanese Yen bulls retain control as intervention talks and BoJ rate hike bets offset fiscal concerns
- Japanese Prime Minister Sanae Takaichi's ruling Liberal Democratic Party (LDP) secured a comprehensive victory in Sunday’s election and won 316 of the 465 seats in the lower house. This is the first time a single party has secured a supermajority with two-thirds of seats since the establishment of Japan’s parliament in 1947.
- The clear mandate gives Takaichi the power to override any legislative veto from the upper house and the leeway to pursue her growth-friendly policies. This further raises the risk of fiscal sustainability, which typically leads to higher long-dated Japanese government bond yields, rising equities, and a weaker Japanese Yen.
- Apart from the removal of political uncertainty, signs of easing tensions in the Middle East boost investors' appetite for riskier assets and prompt some intraday selling around the safe-haven JPY during the Asian session on Tuesday. However, the intervention risk acts as a tailwind for the JPY and caps gains for the USD/JPY pair.
- In fact, Finance Minister Satsuki Katayama stressed that Japan retains the right to intervene against moves that deviate from fundamentals. Adding to this, Japan's top currency diplomat, Atsushi Mimura, stated that he was closely watching moves with a high sense of urgency, suggesting that a direct intervention remains likely.
- Meanwhile, the US Dollar continues with its relative underperformance amid bets that the Federal Reserve will cut interest rates two more times this year, which marks a significant divergence in comparison to hawkish BoJ. Apart from this, concerns about the US central bank's independence keep the USD bulls on the defensive.
- US Treasury Secretary Scott Bessent last Thursday refused to rule out the possibility of a criminal investigation of Kevin Warsh if he ends up refusing to cut interest rates. Adding to this, US President Donald Trump said on Saturday that he might sue his newly selected Fed chair nominee if he didn’t lower interest rates.
- Meanwhile, Bloomberg News reported on Monday that Chinese regulators have advised financial institutions to curb holdings of US Treasuries due to concern over concentration risk and market volatility. This, in turn, favors the USD bears and backs the case for a further near-term depreciating move for the USD/JPY pair.
- Traders now look forward to Tuesday's release of the US monthly Retail Sales, which, along with Fedspeak, might influence the USD demand. The focus, however, remains on the US Nonfarm Payrolls report on Friday and the US consumer inflation figures on Friday, which would offer more cues about the Fed's rate-cut path.
USD/JPY needs to find acceptance below 155.00 to back case for further losses
The USD/JPY bears await a sustained break below the 155.60-155.50 confluence – comprising the 200-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the recent upswing from the January swing low. The rising SMA suggests dips could find dynamic support at the average. The Moving Average Convergence Divergence (MACD) line nudges above the Signal line near the zero level, and the histogram has turned marginally positive, hinting at improving momentum. Hence, a sustained hold above the said confluence support would keep recovery prospects alive.
The Relative Strength Index (RSI) sits at 39, below the midline and signaling subdued buying pressure, suggesting that a break under 154.91 could extend the pullback to the 50% retracement at 154.91. The latter marks a deeper floor, and a break under could extend the pullback.
Intraday tone remains guided by the rising 200-period SMA, which supports the downside and keeps sellers contained as long as price trades above it. MACD’s slight positive bias would strengthen if the histogram expands further, opening scope for an upside extension; a fade back below zero would undermine momentum. RSI remains below 50, and a move toward the midline would improve the near-term profile. Overall, maintaining traction above the SMA-backed support leaves room for buyers to press higher, while a loss of momentum would shift focus back to the retracement floor noted above.
(The technical analysis of this story was written with the help of an AI tool.)
Japanese Yen FAQs
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.
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.
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.
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.
