Japanese Yen tumbles to ten-week low as USD/JPY breaks above 159.00

• USD/JPY breaks above the 159.00 resistance level, reaching its highest level in ten weeks.
• Stronger-than-expected US inflation reinforces expectations of further Fed interest rate hikes.
• The Japanese Yen remains under pressure despite growing expectations of additional BoJ monetary tightening.

USD/JPY extends its bullish momentum on Wednesday, climbing 0.54% to around 159.65 at the time of writing, its highest level in ten weeks. The pair breaks decisively above the 159.00 resistance level, supported by renewed strength in the US Dollar (USD) as investors increasingly anticipate further interest rate hikes by the Federal Reserve (Fed).

The US Dollar's rally follows hawkish remarks from Fed Governor Christopher Waller and stronger-than-expected US Consumer Price Index (CPI) data released on Tuesday. Waller warned that a “half-point Fed rate hike may be needed in December” if monthly core inflation remained “around 0.3% or higher.” The subsequent CPI report showed core inflation rising 0.3% in October, exceeding the 0.2% forecast, while headline inflation increased 0.4%, above expectations of 0.3%.

These developments triggered a sharp repricing of Fed interest rate expectations. According to the CME FedWatch Tool, markets now assign an 85% chance to a 25-basis-point rate hike in December and a 15% chance of a larger 50-basis-point increase.

More importantly, the odds of another 25-basis-point increase in January have surged to 60%, compared with just 19% before Tuesday's repricing, reinforcing the US Dollar's appeal.

Meanwhile, the Japanese Yen (JPY) struggles despite growing expectations that the Bank of Japan (BoJ) could raise interest rates again in December. The central bank's October Summary of Opinions revealed increasing support for further monetary tightening, although policymakers remain divided over the appropriate pace.

The widening monetary policy divergence continues to favor the US Dollar, while USD/JPY's advance toward the psychologically important 160.00 threshold raises the possibility of intervention by Japanese authorities.

Yen slides back toward 160 as strong Dollar keeps BoJ intervention risk in focus

Analysts at MUFG note that the Yen “weakened sharply yesterday in response to the US inflation data” and that “USD/JPY has returned closer to the 160-level, above which intervention becomes a much greater prospect.” Strategists at ING similarly point to a “broadly strong dollar,” but they “increasingly think investors will be looking to acquire cheap yen should USD/JPY push above 160 again.” ING adds that “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,” reinforcing the sense that policy dynamics may gradually shift in favour of a stronger Yen over the medium term, even as spot hovers near intervention-sensitive levels for now.

USD/JPY technical analysis

In the four-hour chart, USD/JPY trades at 159.68, retaining a bullish near-term bias as price holds comfortably above the 100-period and 200-period simple moving averages (SMAs) clustered around 157.90. The pair is also trading above nearby horizontal support at 159.00, while the Relative Strength Index (RSI) has pushed into overbought territory near 72, hinting at strong but potentially stretched upside momentum.

On the topside, immediate resistance emerges at 159.80 ahead of the more significant barrier at 160.40, where buyers could begin to take profit. On the downside, initial support is seen at 159.00, with the 200-period SMA at 157.94 and the 100-period SMA at 157.91 reinforcing a broader demand zone above the horizontal floor at 157.50.

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