The Japanese Yen (JPY) is under mild pressure in Tuesday’s Asian session, though the broader backdrop continues to argue for caution among bearish traders. Bank of Japan (BoJ) Governor Kazuo Ueda signaled on Monday that a December rate increase is on the table, and lingering fears of FX intervention are helping limit deeper losses in the currency.
Yen softens as risk appetite improves
Asian equities are staging a modest recovery after Monday’s selloff, weighing on safe-haven demand and prompting fresh selling in the Yen. This risk-on tone, combined with a slight US Dollar (USD) uptick, has helped USD/JPY extend its rebound from the 154.65 area a two-week low.
However, USD upside remains capped as traders continue to price in another Federal Reserve (Fed) rate cut this month. Dovish Fed expectations keep the Greenback from generating sustained buying interest, limiting traction for the pair.
BoJ signals strengthen, yields surge
Governor Ueda delivered his strongest indication yet of further BoJ normalization, noting that the likelihood of meeting the bank’s economic and inflation projections is rising. With Japanese inflation holding above 2% for over three years, markets are now pricing an 80% probability of a December 18–19 rate hike, up sharply from last week’s 60%.
This shift has driven Japanese government bond yields sharply higher. The two-year yield touched 1% for the first time since 2008, the 20-year yield climbed to its highest level since 2020, and the 30-year yield hit a record high on Tuesday. The 10-year benchmark also rose to a 17-year peak—moves that support dip-buying interest in the Yen.
Japan’s Finance Minister Satsuki Katayama added to the backdrop by warning that recent rapid JPY depreciation is not justified by fundamentals, reinforcing expectations of possible intervention should the currency weaken too quickly.
Fed divergence caps upside for USD/JPY
The USD slumped to a two-week low on Monday after the ISM Manufacturing PMI dropped to 48.2 in November, extending signs of cooling US economic momentum. Coupled with dovish Fed commentary, markets are assigning nearly an 88% chance of a quarter-point rate cut at the December 9–10 meeting – highlighting stark divergence with the BoJ’s hawkish tilt.
Investors now await the US Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, for additional clarity on the policy outlook. Uncertainty remains heightened given the absence of an official jobs report following the recent federal government shutdown.
USD/JPY technical outlook: resistance at 156.00 remains key
USD/JPY’s pullback from the 158.00 region – its highest level since mid-January – has unfolded within a descending channel.
Monday’s rebound confirmed support at the channel base, which also aligns with the 61.8% Fibonacci retracement of the November rally. A decisive break below this confluence would signal renewed bearish momentum and extend the pair’s two-week downtrend, with 155.00 expected to offer initial support.
On the upside, the 156.00 region marks a critical barrier at the top of the channel. A sustained break above this level could trigger short-covering and propel the pair toward 156.60–156.65, followed by the 157.00 handle. Further momentum may target the mid-157.00s before another test of the 158.00 zone comes into play.
