The Japanese Yen (JPY) extends its descending trend against a broadly firmer US Dollar (USD) for the fourth straight day and drops to a nearly two-week low during the Asian session on Monday. The Bank of Japan’s (BoJ) cautious stance on further policy tightening and the lack of a clear timeline for future rate hikes continue to undermine the JPY. The USD, on the other hand, kicks off the first full trading week of the new year on the front foot as geopolitical tensions benefit its status as the global reserve currency. This, in turn, lifts the USD/JPY pair beyond the 157.00 mark.
However, speculations that Japanese authorities would step in to stem further weakness in the domestic currency warrant some caution for aggressive JPY bears. Moreover, prospects for lower interest rates in the US, along with renewed concerns about the Federal Reserve’s (Fed) independence, might keep a lid on the USD and act as a headwind for the USD/JPY pair. Traders might also opt to wait on the sidelines ahead of this week’s key US macro releases, scheduled at the start of a new month, for more cues about the Fed’s rate-cut path in 2026 and a fresh directional impetus.
Japanese Yen bears retain control despite BoJ rate hike bets, intervention fears
- The Bank of Japan raised its benchmark policy rate to a 30-year high level of 0.75% in December and signaled that the scale of future adjustments will depend on economic conditions. Moreover, informed sources said that the BoJ is expected to start full-fledged talks on implementing an additional rate hike if solid wage increases are confirmed in this year’s shunto negotiations in spring.
- Investors, however, appear dissatisfied and remain uncertain about the pace of tightening amid bets that energy subsidies, stable rice prices, and low petroleum costs would keep inflation low into 2026. This continues to undermine the Japanese Yen for the fourth straight day, which, along with a broadly firmer US Dollar, lifts the USD/JPY pair beyond the 157.00 mark on Monday.
- The US Army’s Delta Force – an elite special forces unit – attacked Venezuela and captured its President Nicolás Maduro, along with his wife, on Saturday. This comes on top of the lack of progress in the Russia-Ukraine peace deal, unrest in Iran, and issues surrounding Gaza, which keep geopolitical risks in play and benefits the Greenback’s status as the global reserve currency.
- The USD touches a two-week high, though the upside seems limited amid speculations that the US Federal Reserve will lower borrowing costs in March and maybe deliver another rate cut later this year. Moreover, worries over the Fed’s independence, especially under US President Donald Trump’s administration, could act as a headwind for the buck and keep a lid on the USD/JPY pair.
- Moreover, dovish Fed expectations mark a significant divergence in comparison to expectations of further monetary policy normalisation by the BoJ. Apart from this, intervention speculation should contribute to limiting losses for the lower-yielding JPY. This, in turn, warrants some caution before placing aggressive bullish bets around the USD/JPY pair and positioning for further gains.
- Traders now look forward to important US macroeconomic indicators, scheduled at the start of a new month, for more cues about the Fed’s rate-cut path and some meaningful impetus. A rather busy week kicks off with the release of the US ISM Manufacturing PMI later this Monday and culminates with the closely watched US monthly Nonfarm Payrolls report on Friday.
USD/JPY bulls have the upper hand while above 200-period SMA on H4
The 200-period Simple Moving Average (SMA) continues to rise, and the USD/JPY pair holds above it, reinforcing a bullish bias. The Moving Average Convergence Divergence (MACD) line stands above its Signal line and sits marginally in positive territory, with the histogram edging higher, which hints at strengthening momentum. The 200-period SMA at 156.04 serves as immediate dynamic support.
RSI at 64.83 remains bullish without overbought conditions, reinforcing the upward tone. Momentum would persist while the USD/JPY pair stays above the rising 200-SMA, and a close beneath it could shift the bias toward consolidation.
(The technical analysis of this story was written with the help of an AI tool)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.