The USD/JPY pair remains close to the 155.00 psychological barrier, marking its peak level since early 2025, driven by the dollar’s strength amid significant pressure on the yen. The decision illustrates the increasing gap in policy approaches between the Federal Reserve and the Bank of Japan, further emphasized by Tokyo’s acute awareness of imported inflation and a new surge of speculation regarding potential direct market intervention. The pair concluded the week at 154.004, reflecting a gain of 0.74%, which signifies its highest weekly close since January 27. The yen’s decline deepened even with rising inflation in Tokyo, highlighting that the BoJ’s 0.5% interest rate is inadequate for drawing in capital investments. Fed Chair Jerome Powell’s late October statement dismantled market expectations for a December rate cut, resulting in an increase in U.S. yields and a resurgence in dollar demand. The Federal Reserve’s choice to maintain the benchmark interest rate and indicate that reductions are “not a given” has led to a notable increase in U.S. Treasury yields, particularly the 10-year yield, which is currently around 4.35%. The adjustment realigned risk premiums and strengthened the USD/JPY pair, as carry traders resumed their dollar-long positions.
The Bank of Japan has maintained its benchmark rate at 0.5%, despite the increasing inflation pressures observed within the domestic economy. Governor Kazuo Ueda indicated that the bank requires “more time” to assess wage and price data, noting the slower pay increases from companies in light of 15% tariff pressures on exports. Japan’s Manufacturing PMI decreased from 48.5 to 48.3, and the Services PMI declined from 53.3 to 52.4, indicating a potential softening in domestic demand. Wage growth has experienced a slowdown, with average cash earnings increasing by merely 1.6% year-on-year, compared to a notable 3.4% rise in July. The metrics underscore the BoJ’s dovish position — a stance that continues to dampen yen demand despite persistent real inflation. As USD/JPY approaches 155.00, discussions of intervention have resurfaced in Tokyo’s financial corridors. Finance Minister Katayama delivered a clear message that “patience has limits,” reflecting on Japan’s earlier defense operations at 155 in October 2022 and 160 in May 2024. The interventions were initiated due to monthly yen depreciations surpassing 4–5%, a pattern that is currently reemerging.
Intervention serves as a crude tool — expensive and frequently temporary — yet it is politically necessary as the yen’s depreciation emerges as a public concern in light of escalating import costs. Tokyo’s Ministry of Finance possesses around $1.1 trillion in reserves; however, the timing of its actions has traditionally been focused on creating psychological effects, employing discreet maneuvers around round numbers to heighten market uncertainty. U.S. trade tariffs on Japanese industrial exports are exerting pressure on profit margins, compelling Japanese firms to reduce wage growth. Decreased wages lead to a decline in domestic consumption and slow down inflation momentum, which jeopardizes the Bank of Japan’s long-held objective of establishing a self-sustaining inflation cycle. The depreciation of the yen has provided a boost to exporters, yet it has concurrently increased import costs, especially in the energy sector. As Brent crude hovers around $84.10 per barrel, Japan’s import expenses have escalated by more than 18% compared to the previous year, significantly impacting consumer purchasing power. The current situation presents a paradox that is propelling USD/JPY upward — a weak currency intended to boost exports has now become a political risk.
The pair is exhibiting a strong bullish trend, consistently trading above the 50-day and 200-day EMAs, indicating potential for further continuation. The breakout above 153.00 confirmed a structural shift, transforming prior resistance into solid support. The upcoming resistance levels are positioned at 155.00, 155.880, and 156.884, whereas the downside pivots are located at 153.00, 151.50, and the support band at 149.358. A daily close above 154.415 — the high from October 31 — would likely enhance momentum toward the upper resistance zone. The momentum indicators support this perspective, as the RSI stands at 67 and no divergence is currently apparent. Volatility is currently low but is likely to increase in response to any policy indications from either central bank. The market’s attention is now directed towards a comprehensive macroeconomic calendar. The ISM Manufacturing PMI, with a forecast of 49.2, alongside the ISM Services PMI, expected at 51.0, will serve as indicators of U.S. economic strength. ADP Employment is anticipated to increase by 25,000, while Nonfarm Payrolls are forecasted to grow by 55,000.
The unemployment rate is expected to remain steady at 4.3%, and average hourly earnings are projected to rise by 3.6% year-over-year. Robust prints in these data points may bolster the Fed’s hawkish stance, pushing USD/JPY nearer to 156.00. On the other hand, disappointing results may create a potential opportunity for a correction towards 153.00. Japan’s financial indicators encompass the Tankan Index, household spending data, and import price figures, all essential in influencing the BoJ’s prudent communication. Data indicates that leveraged funds have increased their net long exposure to the dollar against the yen by 6% week-on-week. Meanwhile, retail sentiment appears divided, as retail shorts have risen close to the 155.00 level. The carry trade continues to be profitable, as the U.S.-Japan yield differential exceeding 4% attracts investment into dollar assets. However, intervention risk is functioning as a volatility dampener, as options markets are pricing in heightened implied volatilities at 10.8% for one-month tenors. Analysis of institutional flow indicates that corporations based in Tokyo are increasing their dollar conversions to mitigate import expenses, which is contributing to additional pressure in the spot market. Prime Minister Sanae Takaichi’s cabinet is encountering increasing voter dissatisfaction regarding household energy expenses, compelling the government into a challenging policy situation. A weak yen is now perceived as detrimental — it has come to represent a lack of control over Japan’s economic landscape. The USD/JPY level has consequently evolved from a market indicator into a political benchmark. Should intervention occur, it is expected to be both tactical and swift, with Tokyo aiming for 1–2 yen reversals instead of a prolonged correction.
Historical data indicates that prior interventions have led to temporary declines in USD/JPY by 3–5 yen, with the dollar subsequently regaining strength in the following weeks. The data strongly supports the notion of sustained strength in the U.S. dollar. The Federal Reserve’s cautious approach to rate cuts, combined with strong labor data from the U.S. and a stagnant monetary policy in Japan, underscores the expanding disparity in interest rates. The short-term outlook indicates that USD/JPY is likely to revisit 155.880 and may even breach 156.884, barring any intervention from Tokyo. On any intervention-led pullback to 151.50–153.00, the pair presents a compelling long-entry opportunity supported by fundamental analysis. A significant bearish catalyst would solely stem from a coordinated verbal intervention between the U.S. and Japan or an unexpected shift in BoJ policy, neither of which seems to be on the horizon at this time. Considering the latest data and structural divergence, the USD/JPY is positioned as a BUY, with short-term targets set between 155.80 and 156.80, and a possible long-term extension towards 160.00, contingent on the persistence of tight global liquidity.