160 in sight: USD/JPY breakout sparks intervention concerns

159.80 marks a 10-week high for USD/JPY. After escaping its recent trading pattern in the previous session, the pair is holding steady just short of the 160 intervention zone.

Above-forecast US inflation and hawkish Fed signals have pushed the US dollar higher against its major peers. The headline US CPI increase was 0.4%, exceeding the 0.3% forecast; core CPI gained 0.3%, compared with expectations of 0.2%.

A December rate hike of 50 basis points is now a possibility raised by Federal Reserve Governor Christopher Waller. His comments have led markets to price in a 25-basis-point increase next month in full, with a 10% probability assigned to a 50-basis-point rise.

Following Tuesday's jump to 5%, US Treasury yields are still elevated today at 4.99%. The Treasury market did not trade yesterday because of Veterans Day.

Support for the US dollar comes from both higher yields and expectations that the Fed will raise rates further. Without a convincingly hawkish stance from the BoJ, the yen continues to drift.

Better risk sentiment has done little to unsettle the US dollar, which remains firm. US stocks staged a recovery, leaving the Nasdaq up 1.6% at the close.

Hammack and Daly are among several Fed speakers scheduled today whose remarks will be watched for guidance on the speed of monetary tightening. US jobless claims are forecast to stay low at 195K, followed tomorrow by the release of US PPI data.

Diverging BoJ-Fed rate outlooks weigh on yen

Dollar strength has hurt the Japanese yen, despite BoJ Governor Kazuo Ueda keeping further rate hikes in play after the central bank left rates unchanged at its October meeting. If the Fed tightens more aggressively, the US-Japanese interest rate gap risks widening again, increasing downward pressure on the yen.

Consideration of additional hikes by the BoJ has not freed the yen from its dependence on changing Fed expectations.

With 160 drawing nearer for the pair, Japan's chief currency official, Atsushi Mimura, has expressed concern about how quickly exchange rates have moved in recent days. He warned against putting intervention out of mind so soon after the action seen over the summer.

Japanese officials may issue stronger warnings if the pair crosses 160 and tests their tolerance. That level could represent the boundary they are unwilling to see breached.

159.75 resistance in focus: USD/JPY technical analysis

The breakout above 159 has taken USD/JPY to 159.75 at the time of writing. Previously, the pair had traded within a range since late September, with 159 limiting gains and 157.25 providing support. It now faces the 61.8% Fibonacci retracement of the decline between the 164 high and the 152.90 low.

Momentum supports buyers as they seek to overcome this resistance and target 160. Last tested in late August, 160 is also a level at which Japanese authorities could intervene. Further gains would shift the focus to 161.60, the 78.6% Fibonacci retracement, and subsequently to the 2026 high at 163.99.

If resistance at 159.75, the 61.8% Fibonacci retracement, prevents further gains, the pair could slip back to test 159 and then the 50% Fibonacci retracement at 158.44. Trading below the latter would put the range floor at 157.20 in focus. A breach of that floor would confirm a downside breakout, exposing 155.50. This is the 23.6% Fibonacci level and an area where support held in July and May.