Japanese Yen rebounds from two-month low amid BoJ rate hike expectations and intervention risk

USD/JPY edges down on Thursday, with the JPY supported by BoJ rate hike expectations and concerns over intervention.
Geopolitical uncertainty and bets on a hawkish Fed underpin the USD, lending support to spot prices.
Has the pair peaked? The fundamental picture calls for caution before drawing that conclusion.

Selling pressure returns to USD/JPY in Thursday’s Asian session, ending a two-day advance after the pair touched the psychological 160.00 level on the previous day, its highest since early September. Nevertheless, spot prices remain resilient below the mid-159.00s. With fundamental signals mixed, caution is warranted before positioning for additional losses.

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

The Japanese Yen (JPY) receives modest support from stronger expectations of a BoJ rate hike and heightened intervention risk. Preliminary Corporate Goods Price Index (CGPI) figures released by the Bank of Japan (BoJ) showed a 0.7% increase in wholesale inflation in October, the first rise in three months. The annual rate also climbed from 6.8% in September to 7.1%, reinforcing the case for an imminent December rate hike. Meanwhile, Japan’s top currency diplomat Atsushi Mimura cautioned against excessive FX volatility, adding to the risk of intervention.

Some downward pressure on USD/JPY also comes from the US Dollar (USD), which is consolidating after a two-day advance to its strongest level since April 2025. Support for the USD persists, however, as markets increasingly accept that the US Federal Reserve (Fed) will increase borrowing costs again, with a jumbo 50-basis-point (bps) rate hike possible in December. The US-Iran standoff also keeps the geopolitical risk premium in place, providing further backing for the safe-haven Greenback.

Hopes that negotiations could end the conflict improved after President Donald Trump indicated that additional US military action against Iran was unlikely for now. Yet repeated US strikes on Iran’s Qeshm Island, alongside Tehran’s targeting of an Omani island used to assist ships navigating the Strait of Hormuz, have tempered expectations of a diplomatic resolution to the US-Iran conflict. Together with hawkish Fed expectations, this backdrop favours USD bulls and supports the case for buyers to emerge on dips in USD/JPY.

What does the USD/JPY daily chart indicate?

Can the Near-Term Bullish Bias Hold?

Holding above the 100-day Simple Moving Average (SMA) at 158.99 keeps USD/JPY’s near-term outlook bullish. The pair is consolidating just below 159.75, the 61.8% Fibonacci retracement of the 152.88–164.00 rally, with the 78.6% retracement at 161.62 next in focus. Initial downside support lies at the 100-day SMA of 158.99, followed by 158.44, the 50.0% retracement. Should the pullback deepen, the 38.2% level at 157.13 would come into view, ahead of lower structural support at 155.51 and 152.88.

(An AI tool assisted in preparing the technical analysis for this story. Learn more.)

Bank of Japan: Key Questions Answered

What role does the Bank of Japan play?

Japan’s monetary policy is set by its central bank, the Bank of Japan (BoJ). The institution is mandated to issue banknotes and exercise currency and monetary control to maintain price stability, with an inflation target of around 2%.

How has the Bank of Japan’s policy evolved?

Against a backdrop of low inflation, the Bank of Japan adopted an ultra-loose monetary policy in 2013 to boost economic activity and lift price growth. Quantitative and Qualitative Easing (QQE) forms the basis of this policy: banknotes are printed to purchase assets, including government and corporate bonds, thereby supplying liquidity. The bank stepped up this approach in 2016, easing policy further through the introduction of negative interest rates and, subsequently, direct control over the yield on its 10-year government bonds. A rise in interest rates in March 2024 marked the BoJ’s effective retreat from its ultra-loose policy stance.

How does Bank of Japan policy affect the Japanese Yen?

The Yen weakened against its major currency peers as a result of the Bank’s large-scale stimulus. That depreciation intensified in 2022 and 2023 as the policy gap widened between the Bank of Japan and other leading central banks, which raised interest rates sharply to combat inflation at multi-decade highs. By widening interest rate differentials with other currencies, the BoJ’s approach weighed on the Yen’s value. The trend partially reversed in 2024 following the BoJ’s decision to move away from its ultra-loose policy stance.

What prompted the Bank of Japan to begin reversing its ultra-loose policy?

Japanese inflation rose above the BoJ’s 2% target as the Yen weakened and global energy prices surged. Expectations of higher domestic salaries, a key driver of inflation, also helped prompt the decision.