Japanese Yen weakens ahead of Fed Warsh's speech

USD/JPY gains traction to near 158.10 in Friday’s early Asian session.
US PPI rose by the most in four and a half years in September.
BoJ’s Koeda warned against being overly cautious on rate hikes.

Lallalit Srijandorn FXStreet

The USD/JPY pair gathers strength to around 158.10 during the early Asian trading hours on Friday. The US Dollar (USD) edges higher against the Japanese Yen (JPY) following hotter-than-expected US Producer Price Index (PPI) data. Federal Reserve (Fed) Chair Kevin Warsh’s speech will be the highlight later on Friday.

The US PPI rose by 6.3% year-on-year (YoY) in September, the largest increase since 2022, the Bureau of Labor Statistics revealed on Thursday. This reading followed a rise of 5.6% in August (revised from 5.4%) and was higher than the expectation of an increase of 5.3%.

The recent US Consumer Price Index (CPI) data also exceeded expectations, supporting the case for a Fed rate hike and lifting the Greenback. According to the CME FedWatch tool, federal funds rate futures are pricing in at least one quarter-percentage-point rate hike by the end of the year, and the chance of this scenario has risen sharply over the past month.

On the other hand, hawkish comments from Bank of Japan (BoJ) policymakers could boost the JPY and act as a headwind for the pair. BoJ board member Junko Koeda said on Thursday that the central bank should not become overly cautious about raising interest rates, signalling the chance of a near-term hike in borrowing costs.

Koeda added that the Japanese central bank should adjust its policy rate in a timely manner while keeping in mind the estimated range of the neutral interest rate.

Yen finds support as BoJ hawkish tone reinforces downside move in USD/JPY

Analysts at MUFG note that the Yen has benefitted from “more risk-off trading conditions overnight,” with USD/JPY “dropping back below the 158.00-level,” even though its performance has been “more mixed against non-USD currencies.” The stronger Yen has also been “encouraged by hawkish comments from BoJ board member Junko Koeda.” In a speech to local leaders in Kumamoto overnight, she stated that “given that there are considerable upside risks to prices in addition to continued accommodative financial conditions, the Bank should not become overly cautious about raising the policy interest rate.” MUFG highlight that Koeda further “believes the level of the neutral interest rate is considerably above 1%,” a view that “indicates that she still sees room for further rate hikes with the current policy rate at 1.25%.” Against this backdrop, MUFG conclude: “We still expect the BoJ to leave rates on hold this month but hike again before the end of this year in December providing more support for the yen.”

BoJ’s Koeda flags higher neutral rate, keeping Yen supported

Koeda’s speech score at 8.2/10 matches the historic average on FXS Speechtracker, signaling a consistent tone but with a clear hawkish tilt versus the long-standing accommodative backdrop. Emphasis on upside price risks, a neutral rate “significantly above 1%,” and the need to adjust policy so underlying inflation does not exceed 2% reinforces expectations that the Bank of Japan is preparing markets for further normalization, supporting the Yen on rate-differential grounds.

The remark that the September rate hike reflected resilient economic data, alongside the view that the monetary environment has been accommodative, suggests scope for additional tightening even without a preset pace of hikes. By stressing a range for the neutral rate and comprehensive assessment of financial conditions and funding demand, Koeda underpins a data-dependent but clearly hawkish bias that should limit Yen downside and keep upside risks for Japanese yields in focus.

Technical Analysis: USD/JPY remains capped below the 100-day SMA

In the daily chart, USD/JPY maintains a capped bias as it holds below the 100-day simple moving average (SMA) and the upper Bollinger band. Price is consolidating just above the Bollinger middle band, while the Relative Strength Index (RSI) at 53.23 sits in neutral territory, hinting that directional momentum is modest and failing to decisively challenge overhead supply for now.

On the topside, immediate resistance appears at the upper Bollinger band around 158.85, followed by the 100-day SMA at 159.45, where a sustained break would be needed to re-open a more constructive bullish phase. On the downside, initial support is located at the Bollinger middle band near 157.95, ahead of the lower Bollinger band at 157.05, where a drop through this zone would reinforce the view of renewed selling pressure toward lower levels.

(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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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