Two-month low: Japanese Yen rebounds as BoJ rate hike bets and intervention risk converge

BoJ rate hike expectations and intervention concerns lift the JPY, pushing USD/JPY lower on Thursday.
Geopolitical risks and hawkish Fed expectations underpin the USD, lending support to the pair.
Mixed fundamentals call for caution before declaring a top in USD/JPY.

160.00 was the psychological level USD/JPY tested on Wednesday. That marked its highest point since early September, but selling during Thursday's Asian session interrupts a two-day advance. The pair nevertheless remains resilient below the mid-159.00s. With fundamental signals mixed, positioning for further losses warrants caution.

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

Wholesale inflation rose 0.7% in October, its first increase in three months, according to the Bank of Japan's (BoJ) preliminary Corporate Goods Price Index (CGPI). The annual rate also quickened, reaching 7.1% against September's 6.8%. These readings reinforce the case for an imminent BoJ rate increase in December. Meanwhile, a warning against excessive FX volatility from Japan's top currency diplomat Atsushi Mimura heightened intervention concerns, giving the Japanese Yen (JPY) a modest boost.

After a two-day advance to its highest level since April 2025, the US Dollar (USD) is consolidating, weighing somewhat on USD/JPY. Support for the USD persists, however, as markets increasingly accept that the US Federal Reserve (Fed) will raise borrowing costs again, potentially by a sizeable 50-basis-point (bps) increment in December. The US-Iran standoff also keeps a geopolitical risk premium in place, underpinning demand for the safe-haven dollar.

Hopes that negotiations could end the conflict strengthened after President Donald Trump indicated that further 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, curb expectations of a diplomatic settlement. Together with hawkish Fed expectations, this backdrop favours USD bulls and supports the prospect of dip-buying in USD/JPY.

USD/JPY: Daily Price Chart

158.99 SMA Underpins Bullish Bias

Holding above the 100-day Simple Moving Average (SMA) at 158.99 keeps USD/JPY's near-term outlook bullish. The pair is consolidating immediately below 159.75, the 61.8% Fibonacci retracement of the 152.88–164.00 advance. Beyond that lies the 78.6% retracement at 161.62. Initial downside support sits 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 focus, ahead of structural support at 155.51 and 152.88.

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

Bank of Japan: Key Questions

Bank of Japan: Role and Mandate

Around 2% is the inflation target underpinning the Bank of Japan's (BoJ) price stability mandate. As Japan's central bank, it determines the country's monetary policy. Its responsibilities include issuing banknotes and managing currency and monetary conditions to maintain stable prices.

2013 Onwards: The Bank of Japan's Policy Path

In 2013, against a backdrop of low inflation, the Bank of Japan adopted ultra-loose monetary policy to stimulate economic activity and lift price growth. Quantitative and Qualitative Easing (QQE) underpins this approach: the bank prints money to purchase assets, including government and corporate bonds, supplying liquidity. Further easing followed in 2016, initially through negative interest rates and subsequently through direct control of the yield on its 10-year government bonds. The BoJ then raised interest rates in March 2024, effectively stepping back from its ultra-loose stance.

Bank of Japan Policy and the Yen

Large-scale stimulus from the Bank of Japan weakened the Yen against its major currency peers. Depreciation intensified in 2022 and 2023 as the BoJ's policy increasingly diverged from that of other major central banks, which raised rates sharply to tackle inflation at multi-decade highs. The resulting widening of interest rate differentials with other currencies weighed on the Yen. In 2024, the BoJ's decision to leave its ultra-loose stance behind partially reversed this trend.

Above 2%: Inflation Behind the BoJ's Policy Shift

Japanese inflation climbed above the BoJ's 2% target as Yen weakness combined with a surge in global energy prices. Expectations of higher domestic salaries, a key driver of inflation, also helped prompt the decision to begin unwinding ultra-loose policy.