USD/JPY rises above 159.00 as Japanese Yen sinks to ten-week low

• USD/JPY clears resistance at 159.00 to hit a ten-week high.
• US inflation beats forecasts, strengthening expectations that the Fed will raise interest rates further.
• Rising expectations of further BoJ monetary tightening fail to ease pressure on the Japanese Yen.

Expectations of further Federal Reserve (Fed) interest rate rises are strengthening the US Dollar (USD), driving USD/JPY decisively through resistance at 159.00 on Wednesday. The pair has extended its upward momentum, gaining 0.54% to trade around 159.65 at the time of writing, a ten-week high.

Tuesday's US Consumer Price Index (CPI) release showed core inflation rising 0.3% in October against a 0.2% forecast, while headline inflation increased 0.4%, exceeding expectations of 0.3%. The stronger-than-expected figures followed hawkish comments from Fed Governor Christopher Waller, supporting the US Dollar's rally. Waller had cautioned that a “half-point Fed rate hike may be needed in December” if monthly core inflation stayed “around 0.3% or higher.”

Markets sharply revised their Fed rate expectations in response. The CME FedWatch Tool now puts the probability of a 25-basis-point increase in December at 85%, with a 15% chance of a larger 50-basis-point rise.

The more significant shift concerns January: the probability of a further 25-basis-point rise has jumped to 60% from just 19% before Tuesday's repricing, adding to the US Dollar's appeal.

Growing expectations of another Bank of Japan (BoJ) rate rise in December have, by contrast, failed to support the Japanese Yen (JPY). Although the central bank's October Summary of Opinions showed broader backing for further monetary tightening, policymakers remain split over how quickly to proceed.

As the monetary policy gap widens, the US Dollar continues to benefit. At the same time, USD/JPY's approach towards the psychologically significant 160.00 level increases the prospect of intervention by the Japanese authorities.

Yen retreats towards 160 as Dollar strength sustains focus on BoJ intervention risk

With the Yen “weakened sharply yesterday in response to the US inflation data”, MUFG analysts observe that “USD/JPY has returned closer to the 160-level, above which intervention becomes a much greater prospect.” ING strategists also highlight a “broadly strong dollar,” while adding that they “increasingly think investors will be looking to acquire cheap yen should USD/JPY push above 160 again.” In ING's assessment, “all of the above can feed into the Bank of Japan's view that inflation is now stable at 2.00% and its accommodative monetary policy can be reined in,” suggesting that policy developments may gradually favour a stronger Yen over the medium term. For now, however, the spot rate remains close to levels where intervention risk is heightened.

USD/JPY maintains bullish technical bias

Trading at 159.68 on the four-hour chart, USD/JPY retains a bullish short-term outlook, with the price comfortably above the 100-period and 200-period simple moving averages (SMAs) grouped around 157.90. Nearby horizontal support at 159.00 also remains below the current price. Meanwhile, the Relative Strength Index (RSI) has entered overbought territory near 72, signalling robust upward momentum that may be becoming stretched.

The first resistance lies at 159.80, followed by a more substantial hurdle at 160.40, where buyers may start taking profits. A decline would initially encounter support at 159.00. Below that, the 200-period SMA at 157.94 and the 100-period SMA at 157.91 strengthen a wider demand area above horizontal support at 157.50.

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