Japanese Yen retreats from multi-month top vs USD as traders await US inflation data

USD/JPY edges higher during the Asian session on Thursday, though the upside seems capped.
Fed rate hike bets and US-Iran tensions lend support to the USD ahead of the US inflation data.
A more hawkish BoJ repricing might continue to underpin the JPY and cap gains for spot prices.

Haresh Menghani FXStreet

The USD/JPY pair edges higher during the Asian session on Thursday and trades just above mid-153.00s amid bears turn cautious ahead of US inflation figures. Spot prices, however, remain close to a seven-month low, touched earlier this week, as an aggressive repricing for a more hawkish Bank of Japan (BoJ) continues to underpin the Japanese Yen (JPY).

In fact, traders now seem to have fully priced in a 25-basis-point (bps) interest rate hike by the BoJ at its upcoming September 17–18 policy meeting and are assigning a high probability of a follow-up move in December. Expectations gained traction after BoJ's prominent hawkish members – Hajime Takata and Naoki Tamura – recently pushed for faster and more nimble rate hikes to counter rising inflation. Adding to this, a combination of revised economic growth and strong wage gains bolstered the central bank’s normalization path, supporting the JPY and capping the USD/JPY pair.

The US Dollar (USD), on the other hand, recovers slightly from a nearly three-week low, touched on Wednesday, as bears turn cautious ahead of the release of the US Producer Price Index (PPI), due later today. This will be followed by the US Consumer Price Index (CPI) on Friday, which will be looked at for more cues about the Federal Reserve's (Fed) future policy path. In the meantime, bets that the US central bank will raise borrowing costs later this month, amid inflation risks due to higher energy prices, along with escalating US-Iran tensions, support the USD and the USD/JPY pair.

In the latest developments surrounding the Middle East crisis, Iran said it has attacked 10 ships near the Strait of Hormuz after the US announced it had sunk five Iranian oil tankers in the Gulf of Oman and near Kharg Island. Iran also fired missiles at US forces stationed at the Al-Azraq base in Jordan. Meanwhile, US President Donald Trump claimed the war on Iran would end immediately after the US midterm elections in November. This keeps a lid on the geopolitical risk premium in play and might hold back USD bulls from placing aggressive bets, which, in turn, could cap the USD/JPY pair.

USD/JPY daily chart

Technical Analysis

The USD/JPY pair remains under clear bearish pressure as it holds well below the 155.30-155.20 horizontal support breakpoint. On the downside, acceptance below 153.00 would be seen as a fresh trigger for bearish traders and pave the way for deeper losses as spot prices search for a more durable floor.

(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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