Japanese Yen falls against US Dollar as attention turns to US Midterm Elections

• Japanese Yen lags major currencies despite expectations of a hawkish BoJ.
• Japan indicates it stands ready to intervene as necessary.
• US midterm elections are unlikely to have a significant effect on the US Dollar, ING expects.

With the US Dollar (USD) gaining 0.28% to around 158.30 against the Japanese Yen (JPY) on Tuesday, the Yen is also weaker against its other major counterparts, apart from the Australian Dollar (AUD).

Last week's decision by the Bank of Japan (BoJ) to hold interest rates at 1.25%, by an 8–1 majority, has left financial markets expecting further monetary tightening. Those expectations have not prevented the Asia-Pacific currency from lagging its peers.

According to Commerzbank analysts, the BoJ's most recent assessment “suggested underlying inflation is broadly consistent with the 2% target,” and Governor Kazuo Ueda “emphasised upside inflation risks and the need for further policy normalisation.” Expectations of gradual yet sustained tightening are also evident in rate markets. Commerzbank notes that “the OIS market is pricing in 20bp hike by end-2026 and a total hike of 69bp by September 2027,” reinforcing that outlook.

Japan stands ready to counter disorderly currency moves

In a note, Commerzbank described stronger language from Japanese authorities on currency stability. Finance Minister Satsuki Katayama was explicitly “signal[ling] readiness to intervene in currency markets if movements become disorderly.” The bank also draws attention to her warning that “If there are disorderly movements or excessively speculative moves, we will take action,” reflecting a firmer policy stance on limiting excessive Yen volatility.

Ahead of the US midterm elections later in the North American session, the US Dollar remains under broad pressure. At the time of writing, the US Dollar Index (DXY) is little changed at around 101.85. The index, which measures the Greenback against six major currencies, nevertheless remains near Monday's monthly low of 101.43.

Setting out their expectations, ING strategists say that “we don’t expect today’s US midterm results to cause structural shifts in FX, but the Dollar may face some short-term pressure should the Democrats secure both the House (widely expected) and the Senate (close call).” They base that assessment on the view that “markets fully price in a Republican loss of the House, but only partially a Democratic clean sweep,” adding that “a blue sweep can put some pressure on the Dollar.”

On the potential risks, ING cautions that “fears of tougher regulation could weigh on AI stocks (we’ve recently seen how that can hit the greenback), while markets could price in greater risks of decision-making gridlock around issues such as government funding and the debt ceiling.” The strategists nevertheless temper that warning, stressing that “we doubt that’s enough to trigger a structural directional shift in the Dollar.”

USD/JPY Holds a Mildly Bullish Technical Bias

At 158.29 on the daily chart, USD/JPY remains above its 20-day Exponential Moving Average (EMA) of 157.80. Respect for this trend support leaves the near-term outlook mildly bullish. A rising 20-day EMA below the spot price points to a constructive underlying trend, while the Relative Strength Index (RSI), at 55.33, sits in neutral-to-positive territory. Together, these signals suggest steady upward pressure rather than an overstretched advance.

The 158.29 area provides the first downside support and a near-term pivot, ahead of the 20-day EMA at 157.80. Buyers are likely to defend the broader upward trend at that moving average. This dataset shows no significant technical resistance immediately above the current price, leaving scope for further tests of higher levels provided spot remains above the 157.80 region and momentum holds steady.

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