Japanese Yen trades sideways against recovering USD as intervention risks help cap losses

• Intervention risks support the Japanese Yen, leaving USD/JPY bulls seemingly reluctant to commit.
• Monday’s strong US ISM Manufacturing PMI provides support for the USD alongside bets on a Fed rate rise.
• Prospects for diplomacy with Iran may limit demand for the safe-haven dollar ahead of the US midterm elections.

Below 158.00, USD/JPY remains in consolidation during Tuesday’s Asian session as conflicting fundamental signals leave the pair struggling to extend the previous day’s advance.

Monday’s renewed intervention warning from Japan’s Finance Minister Satsuki Katayama has kept traders on high alert. She said the Joint FX statement with the US remains in force and the government stands ready to counter excessive or disorderly weakness in the Japanese Yen (JPY). Nevertheless, a lack of clarity over when the Bank of Japan (BoJ) is likely to raise rates next weighs on the JPY. Together with a modest rise in the US Dollar (USD), this provides some support for USD/JPY.

October 2026 saw the Institute for Supply Management’s (ISM) Manufacturing PMI increase to 55.5 from 54.5 a month earlier, according to Monday’s release, extending the run of expansion to a 10th consecutive month. Expectations of a hawkish US Federal Reserve (Fed) are also helping the USD extend its overnight recovery from the late-October swing low. According to the CME Group’s FedWatch Tool, traders are assigning a probability of over 70% to another increase in US borrowing costs in December.

Hopes of a diplomatic settlement to end the US-Iran war appear to be restricting the dollar’s upside, however. On Monday, US President Donald Trump said Iran wants a deal to end the war and that an agreement could be reached. Iranian Foreign Minister Abbas Araqchi also described consultations through mediators as very intensive. With the US midterm elections approaching, traders remain broadly cautious, as the vote could generate volatility and affect the Greenback.

Despite revised proposals, several days of talks between Iranian officials and Qatari mediators have produced no major breakthrough, leaving the geopolitical risk premium intact. That backdrop favours USD bulls and supports the prospect of buyers returning on dips in USD/JPY. Attention now turns to US JOLTS Job Openings data, followed by the US ISM Services PMI on Wednesday, although Friday’s US Nonfarm Payrolls (NFP) report will be the main focus.

USD/JPY consolidates on the 4-hour chart

USD/JPY retains a modest bullish technical bias

Holding just above its 100-period Simple Moving Average (SMA) on the 4-hour chart, USD/JPY retains a mildly positive near-term bias. Even so, the recent sideways trading suggests it would be prudent to await a sustained move through the 158.60 barrier before positioning for further upside. Initial protection against declines could come at 157.00, followed by support at the lower end of the trading range around 156.35. A decisive break beneath that area would turn the near-term outlook in favour of bearish traders, opening the way to larger losses.

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