The USD/JPY pair commenced the session at 152.74 and experienced a significant decline to 152.00, reflecting a 0.6% intraday decrease. This movement was influenced by renewed verbal intervention from Japanese officials alongside the enhancement of U.S.–Japan diplomatic relations, which prompted a surge in Yen purchasing. The pair experienced heightened volatility following President Donald Trump’s commendation of Japan’s new Prime Minister Sanae Takaichi, emphasizing enhanced trade collaboration and Tokyo’s commitment to invest $550 billion in U.S. infrastructure, energy, and automotive growth. The diplomatic boost enhanced the Yen’s strength, reflecting increasing confidence in the stability of bilateral trade. In the interim, traders have held back from establishing new long-dollar positions in anticipation of this week’s pivotal Federal Reserve and Bank of Japan policy meetings, events that may significantly alter the short-term trajectory for USD/JPY. The U.S. Dollar Index decreased to 98.60, indicating a slight 0.15% drop, as market participants have completely accounted for a 25-basis-point rate cut by the Federal Reserve. Investors anticipate that Chair Jerome Powell will adopt a cautious approach, yet the political climate has introduced additional uncertainty, particularly following President Trump’s direct criticism of Powell, labeling him as “incompetent.”
The criticism heightened fluctuations in Treasury yields, leading the 10-year yield to decline towards 4.12%. The resulting contraction in yield differentials between U.S. and Japanese bonds diminished the attractiveness of the carry trade that had supported USD/JPY’s eight-month ascent. Despite this, experts remain cautious about shorting the pair aggressively, as historical Fed cuts have often failed to sustainably weaken the Greenback in the early stages of easing cycles. The Bank of Japan is anticipated to maintain its short-term policy rate at 0.5%. However, recent discussions in the market indicate that officials are growing uneasy with the Yen’s depreciation in the 152.00–153.00 range, leading to heightened speculation regarding potential stealth intervention. The adjustments to the BoJ’s Yield Curve Control earlier this year facilitated a rise in 10-year JGB yields to 0.98%; however, this action has not mitigated capital outflows. Insider information suggests that the BoJ’s policymakers might signal a gradual tightening approach in 2026. However, this communication is expected to be nuanced to prevent any disruption in the bond market. The Japanese Ministry of Finance has a history of intervening around these levels, and market participants are vigilant for indications of coordinated dollar selling should USD/JPY exceed 153.50. From a technical perspective, USD/JPY continues to exhibit a higher-high, higher-low formation, upholding a bullish trend even in light of this week’s pullback. The pair remains positioned above the 15-day moving average (151.89) and the 20-day moving average (151.12), with both averages trending upward, thereby affirming the strength of the ongoing uptrend. The RSI at 59.9 suggests a moderate bullish momentum, indicating that the market is still significantly away from being overbought.
Immediate resistance is positioned at 152.70–153.00, a zone that limited upward movement in September and October. A daily close above 153.00 would signal a potential continuation toward the 154.50–155.00 range, coinciding with longer-term resistance from the 2022 intervention zone. Conversely, persistent weakness beneath 151.00 may initiate a more significant retracement toward 150.00, the previous breakout level. The market dynamics concerning USD/JPY persistently hinge on the yield differential between U.S. Treasuries and Japanese Government Bonds. The differential, presently around 360 basis points, continues to favor the U.S. dollar; however, the narrowing trend suggests a possible halt in the carry trade. In light of global risk-off tendencies and geopolitical uncertainty, Japanese institutional investors continue to be net sellers of domestic bonds, opting for higher-yielding U.S. assets. However, experts caution that if the BoJ suggests tightening or the Fed reduces rates twice by year-end, yield compression could trigger a reversal in USD/JPY’s long-term trend. Currently, short-term traders are concentrating on acquiring positions on dips above 151.00, whereas larger funds are hedging their exposure around 154.00 in expectation of potential intervention. The declaration of Japan’s $550 billion investment in U.S. sectors such as power, pipelines, and automotive manufacturing introduces a geopolitical aspect to the strength of the Yen. Toyota’s decision to invest $10 billion in new plants in the U.S. highlights the strengthening of bilateral relations.
The recent diplomatic tone has mitigated concerns regarding potential criticism from Washington towards Tokyo for currency manipulation, a topic of discussion that has persisted since the Yen’s decline past 150.00. Markets perceive the renewed cooperation as beneficial for global trade stability, which is temporarily constraining the upside potential of USD/JPY. However, traders understand that this political goodwill does not compensate for the fundamental divergence in monetary policy, which continues to be the primary structural influence on the pair. The Yen exhibits notable strength across the forex board. On Tuesday, the JPY appreciated by 0.58% against the USD, 0.48% versus the EUR, and 0.77% versus the GBP, showcasing strong performance in the global currency market. The dollar’s varied performance against other major currencies—declining 0.10% against the euro while experiencing a slight increase against the Canadian dollar—indicates a targeted weakness rather than a widespread decline. This indicates that the movement of USD/JPY is influenced by particular flows originating from Japan, rather than a broad decline of the dollar. In the meantime, the speculative positioning on the CFTC futures market reveals a 12% week-over-week reduction in net short Yen positions, suggesting that traders are lessening their bearish exposure in anticipation of the central bank decisions.