Japanese Yen Holds Near Weekly High Against Weaker USD; seems ready to continue climbing

The Japanese yen (JPY) remains bullish for a second straight day and trades near its highest level in over a week against a much weaker US dollar (USD) during the first half of Tuesday’s European session. The result of Sunday’s early elections in Japan removes political uncertainty, which, together with intervention warnings from the Japanese authorities and bets that the Bank of Japan (BoJ) will stick to the path of policy normalization, acts as a tailwind for the yen.

Meanwhile, a landslide victory for the ruling Liberal Democratic Party (LDP) in the lower house strengthens Prime Minister Sanae Takaichi’s power to push through her ambitious, expansionary fiscal policy. This increases concerns about Japan’s already tight public finances. Additionally, good market sentiment is contributing to a reduction in the safe-haven JPY. However, the negative factor is balanced by the bearish USD, which is not giving any respite to the USD/JPY pair.

Japanese yen bulls remain in control as intervention talks and bets on a BOJ rate hike offset fiscal concerns

Japanese Prime Minister Sanae Takaichi’s ruling Liberal Democratic Party (LDP) won a comprehensive victory in Sunday’s elections, winning 316 of 465 seats in the lower house. This is the first time a single party has secured a two-thirds majority since the establishment of Japan’s parliament in 1947.
The clear mandate gives Takaichi the power to override the upper house’s legislative veto and the freedom to pursue his pro-economic growth policies. This further increases risks to the sustainability of public finances, which typically leads to higher yields on long-term Japanese government bonds, rising stock prices and a weaker Japanese yen.
In addition to removing political uncertainty, signs of easing tensions in the Middle East are increasing investor appetite for riskier assets and prompting intraday selling around the safe-haven JPY during Tuesday’s Asian session. However, intervention risk acts as a tailwind for the JPY and limits gains for the USD/JPY pair.
In fact, Finance Minister Satsuki Katayama stressed that Japan retains the right to intervene in cases of moves that deviate from basic principles. Moreover, Japan’s top foreign exchange diplomat, Atsushi Mimura, said he was closely monitoring the moves and had a high sense of urgency, suggesting direct intervention remained likely.
Meanwhile, the US dollar continues to show relative underperformance on bets that the Federal Reserve will cut interest rates two more times this year, marking a significant divergence from the hawkish BoJ. Moreover, concerns about the independence of the US central bank keep dollar bulls on the defensive.
US Treasury Secretary Scott Bessent last Thursday refused to rule out the possibility of opening an investigation into Kevin Warsh if he ultimately refuses to lower interest rates. Moreover, US President Donald Trump said on Saturday that he may sue his newly elected candidate for Fed chairman if he does not lower interest rates.
Meanwhile, Bloomberg News reported on Monday that Chinese regulators have advised financial institutions to limit their holdings of U.S. Treasuries due to concerns about concentration risk and market volatility. This, in turn, favors USD bears and supports further short-term depreciation of the USD/JPY pair.
Traders are now eagerly awaiting Tuesday’s release of monthly U.S. retail sales data, which along with Fedspeak could weigh on USD demand. However, the focus remains Friday’s US non-farm payrolls report and Friday’s US consumer inflation data, which will provide more clues as to the Fed’s interest rate cut path.

USD/JPY needs to find acceptance below 155.00 to protect against further losses

USD/JPY bears are eyeing a sustained break below the 155.60-155.50 confluence – which includes the 200-hour elementary moving average (SMA) and the 38.2% Fibonacci retracement level of the recent rally from the January low. The rising SMA suggests that declines may find vigorous support at the medium level. The moving average convergence divergence (MACD) line is moving above the signal line near the zero level and the histogram has become slightly positive, indicating improved momentum. Therefore, a sustained continuation of the above-mentioned confluence support will maintain the prospects for economic recovery.

The relative strength index (RSI) is 39, below the midline and signaling delicate buying pressure, suggesting a break below 154.91 could extend the pullback to the 50% retracement at 154.91. The latter means a deeper bottom, and a breakout could extend the pullback.

Intraday sentiment remains influenced by the rising 200-period SMA, which supports the bearish situation and holds off sellers as long as prices remain above it. The slight positive bias of the MACD will strengthen if the histogram continues to expand, opening room for growth; a drop below zero would weaken the dynamics. The RSI remains below 50 and a shift towards the midline would improve the short-term profile. Overall, maintaining traction above SMA-supported support leaves room for buyers to push higher, while a loss of momentum would shift attention back to the lower retracement level indicated above.

(The technical analysis for this story was written with the lend a hand of an AI tool.)

Japanese Yen FAQs

The Japanese yen (JPY) is one of the most frequently traded currencies in the world. Its value is largely determined by, among other things, the performance of the Japanese economy, but in particular the policy of the Bank of Japan, the difference between the yields of Japanese and American bonds, and the risk sentiment of investors.

One of the tasks of the Bank of Japan is currency control, so its movements are crucial for the yen. The BOJ has at times intervened directly in currency markets, generally to depress the value of the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The BOJ’s ultra-loose monetary policy in 2013–2024 resulted in the depreciation of the yen against other major currencies due to the growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual withdrawal from this ultra-loose policy has provided some support to the yen.

Over the past decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to widening policy divergences with other central banks, particularly the US Federal Reserve. This supported a widening spread between US and Japanese 10-year bonds, which supported the US dollar against the Japanese yen. The BoJ’s decision to phase out ultra-loose policy in 2024, combined with interest rate cuts at other major central banks, narrows the gap.

The Japanese yen is often viewed as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency due to its supposed reliability and stability. The turbulent times are likely to strengthen the value of the yen relative to other currencies considered riskier to invest in.