JPY Holds Intraday Gains Near One-Week High Against Weakening USD
GlobePRwire
The Japanese Yen (JPY) continues its positive momentum for the second consecutive day, scaling to a one-and-a-half-week high against the US Dollar (USD) during the Asian session on Tuesday. Traders are increasingly pricing in the possibility of an imminent Bank of Japan (BoJ) interest rate hike, following comments from BoJ Governor Kazuo Ueda, who highlighted a gradually improving baseline economic and price outlook.
The LFtrade team provides readers with a comprehensive and carefully organized overview of the matter.
The combination of hawkish BoJ expectations and a cautious market mood is driving flows toward the safe-haven JPY, allowing it to outperform other major currencies. The JPY has recorded four positive days in the previous five, reflecting broad-based bullish sentiment. However, investors remain cautious ahead of the highly anticipated two-day BoJ policy meeting starting Thursday, potentially restraining aggressive positioning.
US Dollar Faces Headwinds Amid Dovish Fed Expectations
The US Dollar (USD) remains under pressure near a two-month low, touched on Monday, as markets increasingly price in additional rate cuts by the Federal Reserve (Fed) in 2026. This contrasts sharply with hawkish BoJ expectations, creating a clear divergence in monetary policy outlooks.
USD/JPY continues to trend lower, as the path of least resistance for the lower-yielding JPY remains to the upside. The bearish USD environment supports the continuation of the USD/JPY downtrend, which began a week ago. Dovish Fed expectations, coupled with the potential replacement of Fed Chair Jerome Powell by a more accommodative figure, further weigh on the USD and limit bullish momentum.
Market participants are also keeping a close watch on upcoming US macroeconomic events, including the delayed Nonfarm Payrolls (NFP) report for October and flash US PMI readings, which could temporarily shift USD sentiment. Meanwhile, US consumer inflation data later in the week will provide critical insight into the Fed’s future rate-cut path, influencing USD positioning and the USD/JPY exchange rate.
BoJ Rate Hike Bets Underpin JPY Strength
The Japanese Yen’s bullish bias is supported by a series of domestic economic indicators. A quarterly survey of major Japanese manufacturers, released on Monday, showed business sentiment at a four-year high, reinforcing expectations for BoJ policy tightening.
Recent private-sector surveys also indicate that Japan’s manufacturing sector contracted at a slower pace, while the service sector slowed slightly in December. These data points have had minimal impact on the JPY’s upward trajectory, suggesting that safe-haven demand remains the dominant driver.
In addition, the defensive mood in Asian equity markets, fueled by concerns over overvalued stocks and an AI bubble, is adding to the JPY’s safe-haven appeal. This has translated into a persistent bearish bias on the USD/JPY pair, keeping it below the 155.00 psychological mark.
Technical Outlook: USD/JPY Bears Maintain Upper Hand
From a technical perspective, the USD/JPY pair faces immediate resistance near the 100-hour Simple Moving Average (SMA). The repeated failures at this level, combined with a breakdown below 155.00, suggest that near-term downside risk remains intact.
Negative oscillators on hourly and daily charts support a continuation of the USD/JPY depreciation, potentially targeting the monthly swing low around 154.35. A breach of the 154.00 round figure could pave the way for further JPY strength in the short term.
On the upside, any recovery attempt might encounter resistance near 155.40-155.45, above which the pair could attempt to retest the 100-hour SMA at 156.00. A stronger bullish momentum could even push the pair toward 157.00, near the monthly swing high achieved last week. Nevertheless, the current trend favors JPY bulls, supported by a combination of policy divergence, safe-haven flows, and technical dynamics.
Market Drivers and Outlook
In the coming sessions, market participants will closely monitor BoJ policy announcements, US macroeconomic data, and Fed communications to assess the potential next leg of USD/JPY movement.
Key focus points this week include the BoJ interest rate decision and forward guidance, the US Nonfarm Payrolls (NFP) report and flash PMI releases, the latest US consumer inflation figures, and equity market sentiment across Asia, all of which are likely to influence global market dynamics, risk appetite, and trading opportunities.
Traders are expected to remain particularly attentive to any signals on monetary policy shifts or unexpected economic surprises that could drive volatility in the USD/JPY pair. Market reactions to these events may set the tone for short- to medium-term trends, impacting both FX positions and broader financial market sentiment in the coming sessions.
Conclusion
Overall, the interplay between hawkish BoJ expectations and dovish Fed signals continues to provide strong technical and fundamental support for the Japanese Yen. Traders are advised to watch for breakouts and key support/resistance levels, as these will likely dictate the near-term trajectory of the USD/JPY pair.