Japanese Yen sticks to intraday gains amid hawkish BoJ bets; lacks bullish conviction

The Japanese Yen (JPY) remains on the front foot against a broadly weaker US Dollar (USD) through the early European session on Wednesday, though it lacks bullish conviction amid a mixed fundamental backdrop. The growing acceptance that the Bank of Japan (BoJ) will stick to its policy normalization path marks a significant divergence in comparison to dovish US Federal Reserve (Fed) expectations and is seen as a key factor behind the lower-yielding JPY's outperformance. Apart from this, rising geopolitical tensions turn out to be another factor that benefits the JPY's safe-haven status.

Investors, however, remain uncertain about the likely timing of the next interest rate hike by the BoJ. Moreover, concerns about Japan's fiscal situation might hold back the JPY bulls from placing aggressive bets. The USD, on the other hand, struggles to attract any follow-through buying amid rising bets for more interest rate cuts by the Fed. This, in turn, might keep a lid on any attempted recovery move for the USD/JPY pair as the market focus remains glued to a host of important US macroeconomic releases this week, including the closely-watched US Nonfarm Payrolls (NFP) report on Friday.

Japanese Yen benefits from divergent BoJ-Fed policy expectations

• Japan's fiscal position remains a source of concern, especially after the cabinet approved Prime Minister Sanae Takaichi’s record-setting ¥122.3 trillion budget. Furthermore, investors remain unsure about when the next Bank of Japan interest rate hike might occur amid expectations that energy subsidies, stable rice prices, and low petroleum costs would keep inflation low into 2026.
• BoJ Governor Kazuo Ueda said on Monday that the central bank will continue raising rates if economic and price developments move in line with forecasts. Ueda added that adjusting the degree of monetary support will help the economy achieve sustained growth, and that wages and prices are likely to rise together moderately, keeping the door open for further policy tightening.
• The outlook pushed yields on the rate-sensitive two-year and the benchmark 10-year Japanese government bonds (JGB) to their highest level since 1996 and 1999, respectively. The resultant narrowing of the rate differential between Japan and other major economies holds back traders from placing aggressive bearish bets around the Japanese Yen amid intervention speculations.
• The US Dollar struggles to capitalize on the previous day's positive move amid dovish US Federal Reserve expectations and concerns about the central bank's independence under US President Donald Trump's administration. Traders also seem reluctant and opt to wait for key US macro data, which could offer more cues about the Fed's rate cut path and provide some meaningful impetus.
• Wednesday's US economic docket features the ADP report on private-sector employment, the ISM Services PMI, and JOLTS Job Openings. The focus, however, will remain glued to the US Nonfarm Payrolls (NFP) report on Friday. The latter would play an important role in determining the next leg of a directional move for the USD ahead of the latest US consumer inflation figures next Tuesday.

USD/JPY bears await break below 156.15 confluence support

The USD/JPY pair's overnight move up validated the 156.15 confluence support – comprising the 100-period Simple Moving Average (SMA) on the 4-hour chart and the lower boundary of a short-term ascending channel. The said area should act as a key pivotal point, which, if broken decisively, will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is slightly negative and contracting around the zero line, suggesting fading bearish momentum. The Relative Strength Index (RSI) prints 52, neutral with a modest positive tilt. The rising SMA supports a buy-on-dips stance, though subdued MACD readings signal limited follow-through for now. RSI near the midline reinforces a consolidative tone within the channel.

Initial support is at the 156.15 confluence, while resistance stands at 157.15, or the upper boundary of the channel. A close above the latter could unlock further gains, whereas failure to overcome it would keep USD/JPY contained inside the rising corridor.

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