US Midterm Elections in focus as Japanese Yen slips against US Dollar

• Hawkish BoJ expectations fail to lift the Japanese Yen against major peers.
• Intervention remains an option whenever necessary, Japan indicates.
• US Midterm Elections are unlikely to materially affect the US Dollar, ING expects.

The US Dollar (USD) has gained 0.28% to near 158.30 against the Japanese Yen (JPY). On Tuesday, the Yen is trading lower against its major counterparts, with the Australian Dollar (AUD) the only exception.

Expectations of further Bank of Japan (BoJ) tightening have not prevented the Asia-Pacific currency from lagging. Last week, the central bank voted by an 8–1 majority to hold interest rates at 1.25%, but financial markets still expect it to continue its monetary tightening cycle.

Commerzbank analysts cite the BoJ’s latest assessment, which “suggested underlying inflation is broadly consistent with the 2% target,” alongside Governor Kazuo Ueda’s remarks, which “emphasised upside inflation risks and the need for further policy normalisation.” Expectations in rate markets also point to gradual but sustained tightening. As Commerzbank notes, “the OIS market is pricing in 20bp hike by end-2026 and a total hike of 69bp by September 2027,” reinforcing that outlook.

Japan ready to counter disorderly currency moves

Japanese authorities have strengthened their language on currency stability, Commerzbank said in a note. Finance Minister Satsuki Katayama was explicitly “signal[ling] readiness to intervene in currency markets if movements become disorderly.” The bank also draws attention to Katayama’s warning: “If there are disorderly movements or excessively speculative moves, we will take action,” reflecting a firmer stance on containing excessive Yen volatility.

Ahead of the US Midterm Elections later in the North American session, the US Dollar faces 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, remains near Monday’s monthly low of 101.43.

Limited lasting currency effects are expected by ING strategists, who write 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).” Their base case assumes that “markets fully price in a Republican loss of the House, but only partially a Democratic clean sweep,” leaving scope for a reaction, as “a blue sweep can put some pressure on the Dollar.”

Risks highlighted by ING include 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 emphasise that “we doubt that’s enough to trigger a structural directional shift in the Dollar.”

158.29: USD/JPY Technical Outlook

USD/JPY is trading at 158.29 on the daily chart. A mildly bullish near-term bias persists while the pair stays above its 20-day Exponential Moving Average (EMA) at 157.80 and respects trend support. Rising beneath the spot price, the 20-day EMA points to a constructive underlying tone. The Relative Strength Index (RSI), at 55.33, remains in neutral-to-positive territory, indicating steady upward pressure rather than an overstretched move.

The 158.29 area provides the first downside support and acts as a near-term pivot. Below it, buyers are likely to defend the broader uptrend at the 20-day EMA of 157.80. This dataset shows no notable technical resistance immediately above current levels. Provided spot remains above the 157.80 region and momentum holds steady, the pair could keep testing higher levels.

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