Ahead of Fed, BoJ meetings, Japanese Yen stays near one-month high against weak USD

USD/JPY finds little follow-through after its Asian session rise, although further losses appear limited.
Spot prices face resistance from diverging Fed-BoJ policy positions as this week’s major central bank events approach.
Further direction for traders will come from the US Q3 GDP release and the PCE Price Index.

Renewed selling pressure is weighing on USD/JPY after an early-week uptick, interrupting Friday’s modest recovery from around 156.00, its lowest level since September 18. Below 157.00, the pair appears vulnerable, but sellers may avoid aggressive positioning before this week’s major central bank announcements and economic data releases.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Wednesday brings the US Federal Reserve’s (Fed) policy decision following its two-day meeting, although investors will pay closer attention to the accompanying rate statement and Fed Chair Kevin Warsh’s remarks at the subsequent press conference. Thursday’s Advance Q3 GDP estimate and Personal Consumption Expenditures (PCE) Price Index will also shape expectations for the Fed’s policy trajectory and influence the US Dollar (USD). Attention will then turn to Friday’s crucial Bank of Japan (BoJ) policy announcement, which should provide further direction for USD/JPY in the near term.

For now, the US Dollar’s attempted rebound from the three-week low reached last Thursday remains constrained by the recent retreat in US bond yields from multi-year highs. Fed officials have also recently indicated that raising interest rates at the forthcoming meeting is not urgent. Meanwhile, last week’s more hawkish remarks from BoJ Governor Kazuo Ueda are supporting the Japanese Yen (JPY). His indication that underlying inflation is approaching the 2% target reinforces the argument for an imminent rate increase. These factors, in turn, could continue to provide a tailwind for USD/JPY, although ongoing geopolitical uncertainty may prevent steeper losses in the safe-haven dollar.

Geopolitical risks remain prominent despite US President Donald Trump ruling out immediate military action against Iran in the latest developments in the Middle East crisis. On Sunday, Yemen’s Iran-backed Houthis threatened to continue attacks on Saudi Arabia’s King Khalid Airport in Riyadh. With US-Iran talks also stalled, these developments keep the geopolitical risk premium firmly in place. Meanwhile, traders continue to price in roughly an 80% probability of another increase in US Fed borrowing costs in December. This could discourage aggressive bearish bets on the USD and contain USD/JPY losses, suggesting caution before positioning for a further decline.

USD/JPY: What Does the 4-Hour Chart Show?

Which Technical Levels Could Shape USD/JPY’s Next Move?

Trading beneath the 200-period Simple Moving Average (SMA) on the 4-hour chart leaves USD/JPY with a bearish near-term bias. This resistance stands at 157.14, with the 23.6% Fibonacci retracement following at 157.58. A move towards the recent cycle highs would require a sustained break above this resistance zone.

Initial support lies at the 38.2% retracement of 156.69. Further below, the Fibonacci cluster at 155.98 and 155.26, corresponding to 50% and 61.8%, could see buyers attempt to stabilise the pullback.

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

Japanese Yen: Common Questions

Which factors shape the Japanese Yen’s value?

Among the most actively traded currencies globally, the Japanese Yen (JPY) broadly reflects the performance of Japan’s economy. More specific influences include Bank of Japan policy, the gap between Japanese and US bond yields, and traders’ appetite for risk, alongside other factors.

Why do Bank of Japan decisions matter for the Japanese Yen?

Currency control forms part of the Bank of Japan’s mandate, making its actions important for the Yen. At times, the BoJ has intervened directly in foreign exchange markets, usually to weaken the currency. Such intervention is infrequent, however, because of political concerns among Japan’s principal trading partners. Between 2013 and 2024, the BoJ’s ultra-loose monetary stance weakened the Yen against major peers as the policy gap between the Bank of Japan and other leading central banks widened. More recently, a gradual withdrawal of that ultra-loose policy has offered the Yen some support.

What does the US-Japan bond yield gap mean for the Japanese Yen?

The Yen lost ground to the US Dollar as the yield gap between 10-year US and Japanese bonds widened. Behind this, over the past decade, was the BoJ’s commitment to ultra-loose monetary policy, which increased its policy divergence from other central banks, especially the US Federal Reserve. That yield differential is now narrowing following the BoJ’s 2024 decision to move gradually away from ultra-loose policy, alongside interest rate cuts by other major central banks.

Why does market risk sentiment influence the Japanese Yen?

During periods of market stress, investors tend to favour the Japanese Yen for its perceived reliability and stability, reflecting its frequent role as a safe-haven investment. As a result, turbulence is likely to lift the Yen against currencies regarded as riskier investments.