The USD/JPY pair declined to ¥153.41, reflecting a 0.38% decrease for the week, as Japan’s fresh intervention warnings coincided with increasing uncertainty surrounding U.S. policy due to the extended government shutdown. Following a rise to an eight-month high around ¥154.48, the dollar-yen exchange rate shifted direction as Japanese authorities conveyed “high urgency” regarding the yen’s decline, while inconsistent U.S. economic data hindered the dollar’s ability to sustain its upward trajectory. Finance Minister Satsuki Katayama’s caution that “rapid, one-sided moves” would not be tolerated indicated a clear preparedness for market intervention, tempering speculative longs above ¥154.25 and strengthening near-term resistance at ¥155.00. The current U.S. government shutdown, which has reached its 39th day, persists in altering policy expectations. Market participants were deprived of new CPI and PPI data releases, as the Senate stalemate delayed crucial economic indicators that may influence the Federal Reserve’s rate decision in December. Reports currently indicates a 70% likelihood of a 25-basis-point cut, an increase from 63% the previous week. Nonetheless, the U.S. Dollar Index continues to find support around 105.1, indicating a robust foundation bolstered by a stronger ISM Services PMI at 53.2 and ADP private payrolls that exceeded forecasts, revealing 42,000 new jobs compared to the anticipated 32,000. The contrast between strong U.S. services activity and the decline in manufacturing, which contracted at 47.8, maintains a conflicted sentiment regarding the dollar. In the case of USD/JPY, the lack of inflation data results in a continued ambiguity regarding policy — traders are currently focusing on the speeches from John Williams, Christopher Waller, and Lorie Logan to assess the trajectory of interest rates ahead of the FOMC meeting on December 10.
The Bank of Japan is currently confronted with a challenging situation regarding tightening measures. The Summary of Opinions, released on November 10, is anticipated to indicate an increasing internal division. Two policymakers have expressed support for a rate hike in October, marking a departure from years of an ultra-loose monetary policy. Inflation holds firm at 3.0% YoY, a decrease from 3.3% in August, whereas real wages experienced a decline of 1.4% YoY in September. Unions like Rengo and UA Zensen are advocating for wage increases of 5–6% in the upcoming 2026 spring negotiations, which intensifies the pressure on the Bank of Japan to consider raising interest rates sooner. Governor Kazuo Ueda has recognized the necessity for more robust wage-driven inflation prior to implementing any tightening measures, yet he is encountering political pressure from the Finance Ministry to address the rising import-driven price increases. Producer prices are anticipated to increase by 2.5% year-over-year in October, compared to 2.7% in September. If this forecast is validated, it may strengthen dovish positioning; however, an unexpected rise could swiftly alter expectations for the Bank of Japan.
Currently, USD/JPY is positioned above the 50-day EMA at ¥152.80 and the 200-day EMA at ¥150.50, indicating a sustained bullish medium-term structure. The pair’s failure to surpass ¥154.48 indicated a possible exhaustion zone, with intraday resistance positioned around ¥155.00 — a psychological threshold associated with April’s post-intervention high. Support is establishing itself around ¥153.00, with the ¥150.00 psychological level acting as a critical floor, where market participants anticipate intervention from the Ministry of Finance should the depreciation of the yen intensify. A decisive breakout above ¥155.88 (February 2025 high) could trigger stops and push momentum toward ¥156.88. However, repeated failures around ¥154.25 raise the likelihood of a consolidation phase or a mild retracement toward ¥151.90. Japan’s export slowdown and weak factory output exacerbate the yen’s structural challenges, while the recent U.S. job cut data (+13% MoM) has begun to undermine confidence in the dollar. Meanwhile, Trump’s proposed tariff extensions, currently under Supreme Court review, introduce volatility, as investors are pricing in a 60% probability that the Court will restrict executive tariff powers. Should tariffs remain limited, Japanese exporters could gain, bolstering yen strength as we approach December. Market positioning data from CFTC indicate that speculative long positions in USD/JPY are approaching 83,000 contracts, marking the highest level since May, which suggests that the pair is currently stretched. Any indication of BoJ tightening or U.S. disinflation may lead to significant reversals toward ¥150.00. On the other hand, should the U.S. CPI report a figure of 3.1% or above, coupled with retail sales exceeding forecasts at +0.2% MoM, the dollar may quickly return to ¥155.00.
The gap between U.S. and Japanese 10-year yields, currently around 390 bps, remains a key factor supporting carry trades that favor the dollar. However, equity volatility introduces a degree of uncertainty. The S&P 500 experienced a decline of 1.8% last week, subsequently regaining half of those losses on Friday. Meanwhile, the Nikkei 225 saw a drop of 3.86%, influenced by underperformance in the industrial and auto export sectors. In the face of the selloff, Japan’s Topix Banks Index experienced a 1.2% increase, indicating optimism regarding the potential for higher domestic rates. With Japanese government bond yields reaching 0.96%, the highest level since 2013, there is a growing perception that the Bank of Japan’s timeline for normalization is speeding up. The continuation of that narrative may lead to a contraction in the yield spread and apply downward pressure on USD/JPY as we approach December. The upcoming critical factor will be the results of the BoJ Summary of Opinions and the return of U.S. CPI/PPI data flow following the government’s reopening. Should the Fed continue with a dovish stance and Japanese wage expectations improve, USD/JPY may pull back to the ¥150–¥151 range before establishing a new balance. However, should inflation data exceed expectations, bolstering the Fed’s hawkish stance, the pair may revisit the ¥155.00–¥156.00 resistance zone. Cross-asset correlations indicate an increasing sensitivity of the yen to U.S. Treasury yields and equity risk, highlighting its function as a volatility hedge once more. The current fundamental landscape indicates a preference for consolidation, accompanied by downside risk. This is a result of vigilant intervention, fragile U.S. economic data, and a shifting stance from the Bank of Japan. Verdict: HOLD – Maintaining a neutral stance within the range of ¥151.90 to ¥155.00, while we anticipate further insights from the communications of the Fed and BoJ.