Intervention risks and broadly weaker USD support Japanese Yen recovery from three-week low

USD/JPY edges down in Wednesday’s Asian session as several bearish factors weigh on the pair.
Spot prices face pressure from renewed USD selling, while intervention concerns encourage some covering of JPY short positions.
The USD comes under pressure ahead of US election results as Treasury yields decline and hopes rise for diplomacy with Iran.

Selling pressure returns to USD/JPY in Wednesday’s Asian session, interrupting a two-day advance that took the pair to a near three-week high on the previous day. A combination of factors is weighing on spot prices, which are trading just below the mid-158.00s, around 0.20% lower on the day. Traders, meanwhile, are preparing for potential volatility around the US midterm election results.

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

The prospect of renewed intervention by Japanese authorities to support the Japanese Yen (JPY) is keeping traders on alert. Together with a softer US Dollar (USD), this is putting some downward pressure on USD/JPY. Speaking on Monday, Japan’s Finance Minister Satsuki Katayama said the joint FX statement with the US remains in place and the government stands ready to counter excessive or disorderly JPY weakness.

Hopes that diplomacy could bring the US-Iran war to an end are also weakening demand for the safe-haven Greenback, adding to selling pressure on USD/JPY. In comments to the Financial Times on Tuesday, President Donald Trump said the US had no immediate plans to strike Iran and appeared to be getting everything it wanted. Traders consequently reduced the geopolitical risk premium, weighing on the USD.

Further pressure on the USD is coming from easing US government bond yields. Investors are tracking early midterm election results against the possibility that Republicans could lose their majority in the House of Representatives and perhaps the Senate too. Dollar bulls remain on the defensive, although increasingly hawkish expectations for the US Federal Reserve (Fed), reinforced by Tuesday’s strong US labour market figures, could restrict further declines.

Hiring remained relatively stable, while September job openings increased from 7.2 million to a higher-than-expected 7.5 million, according to the Labor Department’s monthly Job Openings and Labor Turnover Survey (JOLTS). Energy-related inflation risks also strengthen the argument for additional Fed policy tightening. This calls for caution before positioning for further weakness in the USD and USD/JPY.

The still-wide interest rate gap between the US and Japan could also restrain the lower-yielding JPY. As a result, strong follow-through selling would be needed before concluding that spot prices have formed a near-term top. For short-term direction, traders will next watch the US ADP private-sector employment report and ISM Services PMI, due later in the North American session.

What does the USD/JPY daily chart show?

Technical Analysis: Can USD/JPY Reclaim Resistance?

A mildly bearish near-term outlook persists as USD/JPY trades beneath both the 100-day Simple Moving Average (SMA) at 159.15 and the 61.8% Fibonacci retracement at 159.75. With prices hovering just below the 50.0% retracement at 158.45, this level forms a key overhead hurdle. Reclaiming it would be necessary for a sustained recovery towards the upper Fibonacci band.

The first downside support lies at the 38.2% retracement of 157.16. Below that, the next Fibonacci support is at 155.56, followed by the structural cycle low near 152.97. Stronger buying interest could emerge at these levels if selling pressure returns.

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

Japanese Yen: Frequently Asked Questions

Which factors influence the Japanese Yen’s value?

Among the world’s most actively traded currencies, the Japanese Yen (JPY) is broadly influenced by Japan’s economic performance. More specific drivers include the Bank of Japan’s 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 an important influence on the Yen. The BoJ has occasionally intervened directly in foreign exchange markets, usually to weaken the currency. However, political concerns among Japan’s main trading partners discourage frequent intervention. Between 2013 and 2024, the BoJ’s ultra-loose monetary policy weakened the Yen against its major peers as the policy gap with other leading central banks widened. The subsequent gradual withdrawal of that ultra-loose stance has offered the Yen some support.

Why does the US-Japan bond yield gap affect the Japanese Yen?

By maintaining ultra-loose monetary policy over the last decade, the BoJ moved further apart from other central banks, especially the US Federal Reserve. That policy divergence helped widen the yield gap between 10-year US and Japanese bonds, favouring the US Dollar over the Japanese Yen. The differential is now narrowing as the BoJ gradually moves away from ultra-loose policy following its 2024 decision, while other major central banks cut interest rates.

Why does risk sentiment influence demand for the Japanese Yen?

Investors often regard the Japanese Yen as a safe haven, turning to it during periods of market stress because of its perceived stability and reliability. In turbulent conditions, this preference is likely to lift the Yen against currencies considered riskier investments.