The USD/JPY pair is on a consistent upward trajectory, currently trading at approximately 156.38, reflecting a sustained bullish sentiment as the Bank of Japan refrains from intervention amid ongoing yen depreciation. The pair has increased over 2.4% in November, indicating expanding rate differentials between the Federal Reserve and the Bank of Japan, along with a resurgence in carry-trade flows as global investors utilize yen to finance higher-yielding U.S. assets. The recent election of Prime Minister Sanae Takaichi has led to significant market movements, resulting in a loss of $127 billion in equity value for Tokyo-listed stocks within a week, while also contributing to further declines in the yen and Japanese government bonds. Takaichi’s fiscal agenda — Japan’s largest supplementary spending plan since the pandemic — has sparked concerns regarding the potential for uncontrolled public debt growth. Market participants perceive it as inflationary in the medium term while maintaining a structurally bearish outlook for the yen, given that the Bank of Japan is now less inclined to tighten policy. Although Japanese consumers might appreciate immediate relief, the existing policy imbalance continues to exert pressure on the JPY, thereby enhancing the U.S. dollar’s supremacy throughout Asia.
The yen continues to play a pivotal role as the funding currency for global risk positions, which is crucial to this rally. Given that Japanese short-term rates remain effectively anchored near zero, hedge funds persist in borrowing yen and reallocating those funds into higher-yielding U.S. assets. The return on 10-year U.S. Treasuries, currently around 3.91%, presents a significant yield differential that could drive capital outflows. As these trades increase, the USD/JPY pair gains strength through ongoing JPY selling. Nonetheless, the identical framework introduces systemic risk: when carry positions reverse, the shifts can be abrupt. Last year’s July 11 intervention, occurring alongside a weak U.S. CPI print, led to a swift yen recovery from 160.00 to 140.00, prompting deleveraging throughout global equity markets. The Ministry of Finance has maintained a low profile this quarter, indicating a hesitance to revisit that situation. The broader dollar exhibits resilience, with the DXY positioned around 100.22, an increase from its October lows of 98.98, which corresponds to the 61.8% Fibonacci retracement of the 2021–2022 rally. The established base has initiated a fresh upward trajectory, resulting in the formation of a cup-and-handle pattern on the daily chart, which underpins ongoing USD strength against major pairs.
In light of the dovish expectations surrounding the Federal Reserve, where fed-funds futures indicate a 71% probability of a 25-basis-point cut in December, it is noteworthy that demand for the dollar remains robust. This is largely attributed to lower foreign yields and a prevailing risk-off sentiment driven by geopolitical uncertainties. The technical structure of USD/JPY continues to exhibit bullish characteristics, provided the pair maintains trading above 153.20, while the range of 155.00–155.50 serves as a consolidation base. The 154.45 zone corresponds with previous resistance that has now become support, providing traders with a clear reference point for their positioning. Immediate resistance is observed around 156.80, succeeded by the significant 160.00 level, which marks the site of the prior intervention. A daily close above that threshold may prompt new verbal warnings from Tokyo, while simultaneously confirming an extended bullish continuation pattern. Short-term momentum indicators are robust, with RSI close to 68, indicating ongoing buying pressure while also suggesting a nearing of overbought conditions. The Bank of Japan persists with its yield-curve control measures, keeping the 10-year JGB yield around 0.98%. This approach sustains ultra-low borrowing costs for corporations while exacerbating the weakness of the yen. Market participants anticipate that there will be no significant policy changes prior to the second quarter of 2026, given that core inflation is consistently stable at approximately 2.1%, which is below the Bank of Japan’s preferred range for ongoing tightening. The central bank continues to prioritize the maintenance of liquidity while steering clear of any disruptions to long-duration government bonds. However, that dovish stance widens the monetary gap with the Fed, which, despite potential cuts, still maintains benchmark rates at 5.25–5.50%, resulting in a spread of over 450 basis points — the primary structural driver behind USD/JPY’s strength. The ongoing weakness of the yen is having ripple effects throughout equity markets.
The Nikkei 225 has experienced a decline of nearly 4.8% this week, driven by concerns regarding the potential repatriation of profits by foreign investors. Meanwhile, U.S. technology stocks continue to be affected by carry-trade unwinds; the volatility episode in July resulted in the VIX hitting its third-highest level in history. This time, volatility is kept in check, as indicated by the VIX remaining below 15, which suggests that market participants have confidence in Japan’s passive approach. However, any sudden strengthening of the JPY could still impact leveraged portfolios, especially those utilizing yen-denominated swaps. The U.S. economy remains robust and demonstrates ongoing strength. Despite the slower job growth of 119,000 new jobs in September and an unemployment rate of 4.4%, the data suggests a sense of stability rather than indicating any weakness. Inflation expectations have eased, and New York Fed President John Williams recently indicated that the existing monetary policy is “modestly restrictive,” suggesting the possibility of a policy adjustment. Nevertheless, conflicting messages from other Federal Reserve officials like Susan Collins and Lorie Logan, who cautioned against overzealous easing, maintained support for yields. The current dynamics support USD/JPY remaining above 155, as market participants anticipate a gradual easing path from the U.S. rather than an abrupt shift. Across the Atlantic, EUR/USD hovers around 1.1515, indicating weak demand for the euro as the ECB contends with its own deceleration, highlighted by Germany’s PMI contracting to 52.4 and a downward trend in inflation. The euro’s decline plays a role in the depreciation of the yen, given that cross-currency flows into the dollar continue to be high. The euro’s failure to rise above 1.1650 maintains demand for the dollar, enhancing upward momentum for USD/JPY. Meanwhile, the GBP/USD pair holds firm at 1.3097, indicating that the demand for the dollar is widespread and not confined solely to the yen cross. The yen, once viewed as a reliable safe haven, is experiencing a decline in this cycle, indicative of a fundamental change in global risk appetite. The increase in U.S. Treasury yields, coupled with persistent demand for dollar liquidity, has eroded the yen’s traditional role as a safe haven. Even in the face of mild equity corrections, USD/JPY frequently remains stable or may even appreciate — a direct consequence of Japan’s negative real yields and the worldwide proliferation of carry trades.
Market participants are increasingly viewing yen weakness as a fundamental characteristic rather than a temporary deviation, integrating it into their forward hedging strategies throughout Asian markets. The upcoming critical level for USD/JPY is positioned at 156.80, where a breakout may aim for 158.40, subsequently approaching the significant 160.00 psychological threshold. If Tokyo decides to intervene around that level, there would be a potential downside risk targeting 154.45 and 153.20, which both signify prior structural supports. Momentum traders persist in building positions above 155.00, with algorithmic models sustaining buy signals. Should the pair maintain its position above the 20-day moving average around 155.50, the long-term outlook suggests a potential rise to 162.00 in the first quarter of 2026. On the other hand, a confirmed daily close beneath 153.00 would suggest a medium-term trend reversal. The USD/JPY pair maintains its momentum above 155.00, supported by robust U.S. yields, a passive Bank of Japan policy, and a growing carry-trade base, reinforcing a bullish outlook. Unless the Ministry of Finance indicates an impending intervention, the pair is set for another examination of 160.00, with potential upward movement towards 162.00 as global rate spreads and liquidity imbalances persist in favoring the dollar.