The USD/JPY pair is on a strong rise, currently at 156.54, the highest since January, fueled by soaring Japanese Government Bond yields and ongoing U.S. Dollar strength, pushing the Yen further down. Japan’s 10-year JGB yield hits 1.77%, a 17-year high, fueling market concerns over currency impact from Prime Minister Sanae Takaichi’s fiscal expansion. Investors are responding to the government’s upcoming stimulus package, anticipated to exceed last year’s ¥13.9 trillion supplementary budget, raising concerns about increasing debt and inflation risks. Japan’s Ministry of Finance may be talking, but there’s no active currency defense in sight, letting the dollar’s bullish momentum roll on. The U.S. Dollar Index rose to 99.75, boosting the greenback as investors looked forward to the FOMC minutes and Non-Farm Payroll data, crucial for December’s rate expectations. The USD/JPY uptrend is strong, consistently staying above its 21-, 50-, and 100-day Simple Moving Averages, signaling a robust bullish trend. Since breaking above the 150.00 psychological level in early October, the pair has consistently shown a pattern of higher highs and higher lows. The recent spike was driven by a positive gap sparked by news of Japan’s leadership change and new fiscal commitments. The RSI stands strong at 72, showing overbought conditions, but there’s no clear indication of exhaustion or bearish divergence. Resistance is set at 156.75, the swing high from January 23, with a breakthrough aiming for 157.70, the high close of 2025. Support kicks off around 155.00, with the 21-day SMA at 153.86, creating a key defense zone for buyers.
Policy differences fuel USD/JPY’s power. While the Federal Reserve maintains rates between 3.75%–4.00% following its 25 basis point cut in October, the Bank of Japan continues to suppress yields through its Yield Curve Control mechanism. The BoJ’s approach stays highly supportive, even with recent adjustments, especially when compared to other leading central banks. Japan’s inflation hovers at 2.6%, yet policymakers are cautious about tightening measures due to weak wage growth and fragile consumer spending. The U.S. shows strong labor market resilience and solid consumer data, boosting the dollar’s yield advantage. As the NFP report approaches and markets see just a 48% likelihood of a Fed cut in December, traders are staying bullish on USD/JPY, anticipating confirmation of the Fed’s prolonged high-rate strategy. Yen Depreciation: A Perfect Storm of Fiscal Stress and Political Tensions. Japan-China tensions rise as Prime Minister Takaichi’s Taiwan comments shake investor confidence in Japanese assets. Beijing’s alert of “serious countermeasures” shook bond markets, driving yields up and weakening the Yen as risk premiums expanded. Japan’s soaring debt, now over 260% of GDP, sparks worries about long-term sustainability. Investors worry that more fiscal stimulus without tightening could damage the Yen’s credibility.
As U.S. Treasury yields climb and demand for dollar assets remains strong, global capital flows are boosting the USD/JPY upward trend. The market shifts focus to upcoming macro events. Traders brace for increased volatility as the Non-Farm Payrolls data nears, potentially influencing the Fed’s stance on caution or tightening. Robust job figures may drive USD/JPY to the 157.19–157.70 resistance area, coinciding with the 100% Fibonacci extension from October’s lows. A weaker NFP print might spark quick profit-taking, pushing prices down to 155.00 or even 154.00. FOMC Minutes at 19:00: Insights into the Central Bank’s Inflation Debate. USD/JPY is currently moving within an upward pitchfork pattern established from its October lows. The upper limit hovers around 156.40–156.70, with the median line crossing at approximately 155.20. A breakout above 156.43 could spark an acceleration phase, aiming for the 157.70 yearly resistance. A drop below 155.00 might lead to a deeper pullback towards 153.27, aligning with the October range high and the 50-day moving average. Momentum stays positive, backed by rising open interest and robust inflows from hedge funds and Japanese importers managing USD liabilities. Leveraged funds boost net long positions on USD/JPY for the fourth week in a row, signaling strong confidence in its upward trend.
Retail traders are significantly short, with a long-to-short ratio of 0.42, indicating a potential bullish opportunity. Yen options show calm volatility, indicating a lack of aggressive downside risk hedging among market players. Complacency often comes before significant shifts, and with liquidity drying up before U.S. holidays, moves above 157.00 are likely. The duo’s link to U.S. 10-year yields is remarkably robust at 0.89, positioning Treasury dynamics as a key factor. U.S. bond auction yields hold steady at 4.35%, keeping dollar longs attractive. The Nikkei 225 shines with a 2.4% month-to-date gain, fueled by a weak Yen, as exporters like Toyota and Sony enjoy profit boosts from currency depreciation. On the flip side, domestic sectors dependent on imports, like retail and energy, are experiencing squeezed margins, highlighting Japan’s tricky balance between fostering growth and stabilizing currency conditions. USD/JPY stays strong around 156.50, with only slight resistance ahead, suggesting more upward movement is likely. All signs point to a strong bullish trend ahead. Overbought RSI signals could lead to brief pauses, yet without direct action or a shift to a more dovish Fed stance, the chances of a breakout towards 157.70–158.00 stay strong. Robust U.S. labor figures or aggressive FOMC remarks could speed up this trend, whereas weaker economic results may lead to only minor pullbacks. Current evidence suggests USD/JPY is a strong Buy, backed by robust dollar demand, yield differences, and Japan’s increasing fiscal challenges — all solidifying the greenback’s dominance through year-end 2025.