|

Japanese Yen struggles below 159.00 vs USD amid fiscal woes, US-Japan rate gap

  • USD/JPY attracts some buyers following an intraday dip to sub-159.00 levels on Tuesday.
  • Japan’s fiscal concerns and the wide US-Japan rate gap continue to undermine the JPY.
  • Geopolitical tensions, inflation fears and Fed-hike bets support the USD and spot prices.

The USD/JPY pair reverses an intraday dip to sub-159.00 levels and climbs to the top end of its daily range during the early part of the European session on Tuesday. Spot prices currently trade around the 159.25-159.30 region, near a one-and-a-half-week top set on Monday, and seem poised to build on the recent solid recovery from the lowest level since early May.

The Japanese Yen (JPY) has surrendered a substantial portion of its recent joint US-Japan intervention-led recovery registered last week amid concerns about Japan's worsening fiscal condition. In fact, Prime Minister Sanae Takaichi's government fiscal year 2026 budget totals a record ¥122.3 trillion. Moreover, the wide interest rate gap between Japan and other major economies, including the US, keeps the so-called carry trade active and continues to weigh on the JPY. This, along with a modest US Dollar (USD) strength, is seen acting as a tailwind for the USD/JPY pair.

The initial market reaction to Friday's disappointing US Nonfarm Payrolls (NFP) report fades rather quickly amid expectations that inflation risks stemming from volatile oil prices would force the Federal Reserve (Fed) to adopt a more hawkish stance. In fact, oil prices climbed to a one-and-a-half-week high amid fading hopes for a swift reopening of the Strait of Hormuz and restricted traffic through the Bab el-Mandeb Strait. This keeps bets for at least one Fed rate hike in 2026 firmly on the table and acts as a tailwind for the safe-haven Greenback amid the US-Iran standoff.

Traders, however, might refrain from placing aggressive directional bets and opt to wait for further cues about the Fed's future policy path. Hence, the focus will remain glued to the release of the latest US inflation figures – the Consumer Price Index (CPI)and the Producer Price Index (PPI), due on Wednesday and Thursday, respectively. Apart from this, traders will take cues from further developments surrounding the Middle East crisis, which will drive the USD demand. Nevertheless, the fundamental backdrop seems tilted in favor of USD/JPY bulls and backs the case for further gains.

USD/JPY 4-hour chart

Chart Analysis USD/JPY

Technical Analysis

The USD/JPY pair maintains a bullish near-term tone above the 38.2% Fibonacci retracement of the intervention-led corrective fall from a four-decade high. The pair is now pressing into a dense overhead Fibonacci band, with the 50.0% retracement at 159.62 acting as immediate resistance, keeping gains somewhat capped. A clear break above would open the way toward the 61.8% retracement at 160.66, with subsequent Fibonacci barriers at 162.14 and 164.03 limiting further upside. On the downside, initial support is seen at the 38.2% retracement at 158.58, ahead of the 23.6% level at 157.29, while a deeper pullback would likely look to the structural anchor near 155.21 as a more distant floor.

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

Japanese Yen Price Last 7 Days

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies last 7 days. Japanese Yen was the strongest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD-0.21%-0.50%1.35%-0.77%-0.68%-0.03%0.10%
EUR0.21%-0.29%1.58%-0.57%-0.34%0.19%0.30%
GBP0.50%0.29%1.85%-0.30%-0.22%0.48%0.59%
JPY-1.35%-1.58%-1.85%-2.09%-1.98%-1.46%-1.22%
CAD0.77%0.57%0.30%2.09%0.13%0.63%0.88%
AUD0.68%0.34%0.22%1.98%-0.13%0.60%0.78%
NZD0.03%-0.19%-0.48%1.46%-0.63%-0.60%0.13%
CHF-0.10%-0.30%-0.59%1.22%-0.88%-0.78%-0.13%

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 flirts with 0.7000, lowest since early August amid bullish USD

AUD/USD hits a fresh low since early August during the Asian session on Friday and looks vulnerable near 0.7000 after breaking below the 200-day SMA overnight. Against the backdrop of the hawkish Fed, a two-day rally in oil prices revives inflation fears and continues to push US bond yields to multi-year highs. Adding to this, geopolitical risks lift the US Dollar to a two-month high, overshadowing RBA rate hike bets and weighing on the pair.

USD/JPY pulls back from three-week high after failing near 159.00

USD/JPY edges lower during the Asian session on Friday, stalling its recent strong move to a three-week high of 159.00 as Japanese Yen bears turn cautious amid intervention fears. Meanwhile, the US Dollar retains a strong bullish undertone as the Fed's hawkish outlook and oil-driven inflation fears continue to push US bond yields to multi-year peaks. Furthermore, the BoJ's dovish rate hike last week might cap JPY and support spot prices.

Gold struggles below $4,300 level with bears still in control

Gold is trimming some losses on Friday, trading just below the $4,300 level after bouncing from support in the $4,230 area. The broader bearish trend, however, remains intact as market expectations pf further Federal Reserve rate highs and long-term US Treasury yields above the 5% level are likely to pose a heavy weight on precious metals.

Ripple, Cardano, Solana: ETF inflows and whale demand signal further rally
Ripple (XRP), Cardano (ADA), and Solana (SOL) continue to experience a steady recovery with double-digit gains so far this month. Ripple and Solana experience firm institutional demand, while the percentage of ADA supply in profit rises, underpinned by interest from large-wallet investors, commonly referred to as whales.
The Dollar is winning, but markets may be losing
The dollar is strengthening, Treasury yields are approaching levels not seen in almost two decades, and oil prices are again adding to inflation concerns. For currency traders, these developments appear to offer a relatively straightforward conclusion: higher US interest rates should support the dollar. But the broader market picture is considerably more complicated.
BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.