The Japanese Yen (JPY) remains under pressure against a mildly positive US Dollar (USD) during the Asian session on Tuesday, as domestic political uncertainty and equity market optimism weigh on the safe-haven currency. Investors are cautious ahead of potential Bank of Japan (BoJ) policy changes, even as hawkish dissents hint at possible rate hikes, contrasting sharply with the Federal Reserve’s (Fed) dovish outlook.
BoJ rate outlook and political risks
A Liberal Democratic Party (LDP) leadership election on 4 October could shape the timing of the next BoJ rate move. Front-runners Shinjiro Koizumi and Yoshimasa Hayashi have stressed fiscal discipline while supporting economic growth, whereas Sanae Takaichi emphasized controlling yield spikes when guiding policy.
Last week, two BoJ members dissented on the decision to keep the benchmark rate at 0.5%, signaling potential hikes if economic and price conditions align with forecasts. Markets are now pricing in a greater than 25 basis-point rate hike in October amid signs of domestic economic resilience.
Fed divergence and USD/JPY dynamics
The Fed cut rates last Wednesday for the first time since December and projected additional cuts by year-end amid softening labor market data. Traders are betting that US rates could drop faster than Fed guidance, keeping a lid on USD demand and limiting USD/JPY upside. Fed Chair Jerome Powell’s upcoming speech during the North American session is expected to influence short-term USD dynamics and provide impetus for the pair.
Geopolitical tensions support JPY
Ongoing geopolitical risks continue to support safe-haven demand. Russia and Ukraine recently accused each other of deadly drone attacks on civilian areas, while NATO nations claim repeated Russian airspace violations, which Moscow denies. In the Middle East, Hamas escalated attacks on Israel amid Israeli military operations in Gaza. These factors maintain the JPY’s appeal, though broader risk sentiment currently caps its gains.
Technical outlook for USD/JPY
Support for USD/JPY lies near last Friday’s post-BoJ swing low at 147.20, followed by the 147.00 mark. Breaching these levels could accelerate declines toward 146.20 and the 145.50–145.45 range, last touched on 7 July.
On the upside, the 148.00 round figure is an immediate hurdle, ahead of the 148.35–148.40 two-week high and the critical 200-day SMA around 148.55. Sustained gains above these levels could lift USD/JPY toward 149.00 and the monthly high near 149.15.
