|

Japanese Yen slides to two-week low, seems vulnerable as USD stands firm ahead of US CPI

  • USD/JPY looks to build on its recent strong recovery amid a combination of supporting factors.
  • The wide rate gap between Japan and other major economies keeps the JPY carry trade active.
  • Japan’s fiscal woes further weigh on the JPY and support the pair ahead of the US CPI report.

The USD/JPY pair touches a one-and-a-half-week high during the Asian session on Wednesday, with bulls now looking to build on the momentum further beyond mid-159.00s amid a supportive fundamental backdrop.

The initial surge led by the first US-Japan joint intervention since 1998 has largely faded as the wide rate gap between Japan and other major economies keeps the so-called carry trade active, undermining the Japanese Yen (JPY). Furthermore, Prime Minister Sanae Takaichi's aggressive economic stimulus and tax cuts have raised concerns about Japan's worsening fiscal condition. This, along with economic risks stemming from the continued energy disruptions due to the Iran war, continues to weigh on the JPY and acts as a tailwind for the USD/JPY pair.

Meanwhile, the Reuters Tankan survey showed that Japanese manufacturers' sentiment index ​climbed from 13 in the previous month to 18 in August, marking the highest level since March 2026. Adding to this, the gauge for non-manufacturers rose to 28 from 25 in July. Furthermore, traders are also increasingly pricing in the possibility of another Bank of Japan (BoJ) rate hike, with Tokyo Tanshi data showing a 66% chance of a move in September. This, however, does little to impress JPY bulls or dent the underlying strong bullish sentiment surrounding the USD/JPY pair.

The US Dollar (USD), on the other hand, is looking to build on this week's gains amid expectations that higher oil prices would rekindle inflationary pressures and force the US Federal Reserve (Fed) to adopt a more hawkish stance. According to the CME Group's FedWatch Tool, traders are assigning over a 75% chance that the US central bank will raise borrowing costs at least once by the end of 2026. This remains supportive of elevated US Treasury bond yields, which, along with geopolitical uncertainties, support the USD and the USD/JPY pair.

Traders, however, seem hesitant ahead of the crucial US Consumer Price Index (CPI) report, due later today. Apart from this, the US Producer Price Index (PPI) on Thursday will influence market expectations about the Fed's future policy path, which, in turn, will drive the USD demand. Apart from this, further developments surrounding the Middle East crisis should provide some meaningful impetus to the buck and the USD/JPY pair. Nevertheless, the aforementioned factors support prospects for an extension of the pair’s recent strong recovery move from the 155.25-155.20 region, or the lowest since May, set earlier this month.

USD/JPY 4-hour chart

Chart Analysis USD/JPY

Technical Analysis

The USD/JPY pair sits below the 50.0% Fibonacci retracement level of the post-intervention slump and the 61.8% level at 160.63, which suggests that recent gains are losing traction and that upside attempts are increasingly constrained by overhead supply. On the downside, initial support is seen at the 38.2% retracement at 158.58, ahead of the 23.6% level at 157.31, while a deeper slide would expose the structural anchor near 155.26.

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

Japanese Yen Price This Month

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this month. Japanese Yen was the strongest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD-0.08%-0.26%-0.05%-0.59%-0.40%0.19%0.83%
EUR0.08%-0.19%0.00%-0.49%-0.32%0.27%0.90%
GBP0.26%0.19%0.24%-0.28%-0.13%0.47%1.12%
JPY0.05%0.00%-0.24%-0.50%-0.49%0.05%0.82%
CAD0.59%0.49%0.28%0.50%0.14%0.31%1.50%
AUD0.40%0.32%0.13%0.49%-0.14%0.62%1.27%
NZD-0.19%-0.27%-0.47%-0.05%-0.31%-0.62%0.65%
CHF-0.83%-0.90%-1.12%-0.82%-1.50%-1.27%-0.65%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

Author

Haresh Menghani

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

More from Haresh Menghani
Share:

Editor's Picks

AUD/USD bounces off multi-month low, nears 0.6900

AUD/USD edges higher toward 0.6900 in the Asian session on Wednesday, recovering some of the previous day’s losses to its lowest level since March as the US Dollar stalls the hot US CPI-inspired rally amid hopes of a US-Iran peace deal. Meanwhile, hawkish comments from FOMC members have almost confirmed another December rate hike, which favors USD bulls and should cap the Aussie.

USD/JPY remains capped below 159.00 amid looming intervention risks

USD/JPY struggles to build on the previous day’s strong gains to a near one-month top as intervention risk supports the Japanese Yen while hopes of a US-Iran peace deal cap the safe-haven US Dollar. That keeps the pair's upside limited below 159.00, for now.

Gold: The $4,000 mark holds the downside, for now

Gold adds to Tuesday’s small pullback and remains close to the key $4,000 mark per troy ounce on Wednesday. The yellow metal’s continuation of the downward trend comes against the backdrop of a robust performance of the US Dollar, rising US Treasury yields across the board and rising bets of extra rate hikes by the Fed.

Crypto Today: Bitcoin, Ethereum and XRP struggle to find footing amid spot ETF outflows

Cryptocurrency prices are broadly consolidating near key lower support levels on Wednesday, led by Bitcoin, hovering around $74,000. Ethereum sits above $2,000 while its upside remains structurally capped. Ripple, meanwhile, holds delicately above $1.00.

Ten questions for China in 2027

2026 has been a year of slowing growth and increasing divergence within China's economy. We saw the gap between external and domestic demand, as well as between the new economy and the old economy, widen significantly. Here, we look ahead to the key questions facing China in 2027.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.