Japanese Yen weakens amid less hawkish BoJ as bears shrug off fresh intervention warning

USD/JPY kicks off the new week on a positive note as BoJ uncertainty undermines the JPY.
Intervention warning from Japan's Finance Minister Satsuki Katayama fails to impress JPY bulls.
Iran diplomacy hopes act as a headwind for the USD, which might cap the upside for the major.

Haresh Menghani FXStreet

The USD/JPY pair gains some positive traction at the start of a new week, recovering further from Friday's post-Bank of Japan (BoJ) swing low to sub-157.00 levels. The momentum lifts spot prices to the 157.85 region during the Asian session and seems unaffected by fresh intervention warning from Japan's Finance Minister Satsuki Katayama.

Katayama said that the Joint FX statement with the US persists and added that the government is prepared to act to curb excessive or disorderly weakness in the Japanese Yen (JPY). The remarks, however, fail to offer any support to the JPY amid the uncertainty over the likely timing of the next BoJ rate hike. Furthermore, the wide interest rate gap between Japan and other major economies undermines the lower-yielding JPY and lends some support to the USD/JPY pair.

Meanwhile, hopes for the Middle East diplomacy act as a headwind for the safe-haven US Dollar (USD). In fact, Iranian negotiators reportedly held a third day of talks with Qatari mediators on Sunday to advance a deal to end the US-Israeli war on Iran. Moreover, Iran proposed a 48-hour plan to reopen the Strait of Hormuz, contingent upon the US meeting its conditions. Meanwhile, US President Donald Trump said that negotiations were going fine and that Iran wanted a deal.

Trump, however, added that he has not ruled out further military action after the November 3 midterm elections. Furthermore, Iran’s Supreme Leader, Mojtaba Khamenei, ordered his top military commanders to prepare for renewed confrontation with the US and Israel. Apart from this, fresh Ukrainian attacks on Russian oil refineries keep the geopolitical risk premium in play, which, along with US Federal Reserve (Fed) rate hike expectations, favors USD bulls.

US macro data, released last Thursday, pointed to a resilient economy and persistent price pressures. Moreover, inflation fears stemming from elevated crude oil prices underpin prospects for further Fed tightening. According to the CME Group's FedWatch Tool, traders are pricing in around a 75% chance the US central bank will raise borrowing costs in December. This suggests that the path of least resistance for the USD and the USD/JPY pair is to the upside.

USD/JPY 1-hour chart

Technical Analysis

The USD/JPY pair is pressing against the 23.6% Fibonacci retracement at 157.80 in a mildly bullish near-term bias. Moreover, spot prices hold above the 100-period Simple Moving Average (SMA) at 157.75, suggesting that the underlying demand on dips while the pair gravitates toward the upper end of the recent retracement structure.

Meanwhile, the next notable resistance emerges at the cycle high anchor around the 158.34, where a clear break would open the way for a continuation of the broader bullish advance. On the downside, immediate support is seen at the 23.6% Fibo. retracement at 157.80, with deeper floors at the 38.2% level near 157.47 and the 50.0% retracement at 157.21.

(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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