The Japanese Yen strengthens for a second consecutive session on Tuesday, advancing against a broadly weaker US Dollar and retracing a large portion of last week’s post-Bank of Japan (BoJ) pullback. Renewed intervention warnings from Japanese officials, rising geopolitical risks, and a clear divergence between BoJ and Federal Reserve policy expectations continue to underpin demand for the yen amid thin year-end liquidity.
Intervention rhetoric and safe-haven flows support JPY
Japan’s Finance Minister Satsuki Katayama delivered her strongest warning yet, stating that authorities are prepared to take bold action against speculative currency moves that are not aligned with economic fundamentals.
This follows comments from Japan’s top FX official Atsushi Mimura, who cautioned against excessive yen weakness. At the same time, escalating geopolitical tensions, including renewed friction involving the US and Venezuela, the ongoing Russia-Ukraine war, and heightened Israel-Iran risks, are driving safe-haven flows into the JPY.
Hawkish BoJ contrasts with dovish Fed expectations
The BoJ’s stance remains a key pillar of yen strength. Japanese government bond yields climbed, with the benchmark 10-year yield touching a 26-year high, as expectations for further policy tightening firmed after the central bank raised interest rates to their highest level in three decades last Friday.
BoJ Governor Kazuo Ueda reiterated that additional rate hikes remain likely if economic activity and inflation evolve in line with projections, noting that confidence in achieving the bank’s outlook is increasing. In contrast, markets are pricing in a higher probability of two additional US Federal Reserve rate cuts in 2026, reinforcing downside pressure on the US Dollar.
USD pressured by credibility concerns
Beyond rate expectations, the greenback remains under pressure amid growing concerns over the Federal Reserve’s long-term policy credibility. US Treasury Secretary Scott Bessent recently suggested that a new Fed chair could scrap the dot plot and adjust the central bank’s inflation framework and communication strategy, adding to uncertainty and weighing on the USD, which has slipped to a one-week low.
Focus shifts to US data and Tokyo CPI
Market participants now turn their attention to key US economic releases later on Tuesday, including the delayed Q3 GDP report and Durable Goods Orders, for short-term direction. Looking ahead, Friday’s Tokyo CPI data is expected to play a more decisive role in shaping near-term yen dynamics.
USD/JPY technical outlook turns fragile
From a technical perspective, USD/JPY appears vulnerable after failing to sustain gains near the 158.00 area, forming a potential bearish double-top pattern. An intraday break below the 38.2% Fibonacci retracement of last week’s rally favors further downside, while short-term moving averages have flattened, limiting upside momentum.
The MACD has slipped below its signal line with a negative histogram, pointing to fading bullish momentum, while the RSI has eased to neutral territory near 47. Measured from the 154.39 low to the 157.71 high, the 50% retracement at 156.05 provides initial support, with a break below this level exposing the 61.8% retracement near 155.66. On the upside, a recovery above 156.44 could allow a move toward the 23.6% retracement around 156.93.
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