Despite broad USD weakness, Japanese Yen eases slightly after reaching fresh monthly high

• Heavy selling weighs on USD/JPY on Thursday, with lower US bond yields keeping the USD under pressure.
• The JPY gains support from BoJ rate hike expectations and intervention concerns, deepening the pair’s sharp fall.
• Further USD losses could be contained by geopolitical risks and hawkish Fed expectations, lending support to spot prices.

Selling pressure has pushed USD/JPY to a new monthly low on Thursday, with the pair slipping below short-term trading range support around the mid-157.00s in early European trade. A recovery of a few pips over the past hour has since lifted spot prices to just above 157.00, although they remain down over 0.60% on the day.

A further retreat in US bond yields from multi-year highs has sent the US Dollar (USD) to a three-week low and reduced the US-Japan interest rate differential. The move follows recent signals from US Federal Reserve (Fed) officials that an interest rate increase is not urgent at the forthcoming October 27–28 policy meeting. Meanwhile, increasingly hawkish indications from the Bank of Japan (BoJ) are giving the lower-yielding Japanese Yen (JPY) a sizeable boost, adding to the downward pressure on USD/JPY.

Expectations of an imminent December interest rate increase have strengthened after BoJ Governor Kazuo Ueda said earlier this week that underlying inflation was approaching the central bank’s 2% target. Traders are also keeping a close watch on the risk of direct currency intervention by Japanese authorities, amid speculation that attempts to break the crucial psychological level of 160.00 could prompt action. Technical selling following the break below support at 157.50 is further weighing on USD/JPY.

Fears that tensions in the Middle East could escalate further continue to sustain a geopolitical risk premium. According to The New York Times, plans for a brief but intense military campaign against Iran after the US midterm elections have been prepared by the US and Israel. Iran’s Foreign Minister, Abbas Araghchi, said the country was ready for diplomacy, while stressing that it was also prepared to defend itself. These developments, together with expectations of a December Fed rate hike, could lend support to the USD and USD/JPY.

Traders are assigning around a 90% probability to another increase in US borrowing costs before this year ends, according to the CME Group’s FedWatch Tool. Inflation concerns stemming from oil also reinforce the prospect of additional Fed tightening, potentially curbing losses in the US Dollar and USD/JPY. With next week’s central bank events approaching, traders may hold back from taking fresh directional positions: the FOMC decision is due on October 28, ahead of the BoJ meeting on October 29-30.

What does the USD/JPY daily chart indicate?

Technical Outlook: Could USD/JPY Extend Its Decline?

For bearish traders, the intraday break below the short-term range could offer a fresh trigger. The near-term outlook remains mildly bearish as USD/JPY trades beneath both the 100-day Simple Moving Average (SMA) at 159.39 and the 50% Fibonacci retracement at 158.42. A sustained move below the 38.2% retracement around 157.10 would, however, be required to strengthen the case for a further decline towards the 23.6% level near 155.47. Beyond that, a sharper retreat would bring the structural floor around 152.83 into focus.

Any recovery would first encounter resistance around 158.42, the 50% Fibonacci retracement level. Further up, a wider supply zone comprises the 100-day SMA at 159.39 and the 61.8% retracement at 159.74, followed by resistance at 161.61 and 164.00.

(The technical analysis of this story was written with the help of an AI tool. Know more.)