Japanese Yen Reaches Fresh Low Since Late July Against US Dollar Amid Fiscal Concerns and Rate Gap

The USD/JPY pair is hovering near its highest level since July 31, reaching that peak during Wednesday’s Asian session and fluctuating around the 160.25–160.30 range.

A worldwide sell‑off in bonds propelled the 10‑year Japanese Government Bond (JGB) yield past the 3 % threshold for the first time since 1996, raising the cost of servicing Japan’s sizable debt. This occurs as Prime Minister Sanae Takaichi pursues aggressive fiscal spending, raising concerns about long‑term fiscal sustainability, which is weighing on the Japanese Yen (JPY) and providing a tailwind for the USD/JPY pair.

Meanwhile, US Treasury Secretary Scott Bessent has expressed support for decisive monetary measures to address the weak Yen, reinforcing expectations that the Bank of Japan (BoJ) will raise interest rates later this month. Despite the hawkish stance, JPY bulls remain unimpressed, as borrowing costs in Japan remain markedly lower than those in other major economies, including the United States. This dynamic sustains the JPY carry trade and continues to underpin the USD/JPY pair.

BoJ faces mounting pressure as US officials urge policy shift

Rabobank’s Jane Foley observes that political scrutiny of the Bank of Japan has intensified, with US Treasury Secretary Bessent escalating his rhetoric. According to Rabobank, “yesterday he heightened the pressure on the BoJ, indicating his belief that the BoJ will ‘do the right thing’ on monetary policy and signaling a strong likelihood of a rate hike later this month.” Foley contends that these remarks highlight the heightened attention from markets and policymakers on the BoJ’s next steps, as Japanese yields climb and the Yen continues to weaken.

The US Dollar (USD) continues to draw safe‑haven flows amid rising US‑Iran tensions and growing expectations of a Federal Reserve (Fed) rate hike, supported by oil‑related inflation concerns. This reinforces the near‑term constructive outlook for the USD/JPY pair. Nevertheless, bulls appear cautious, preferring to wait for the release of the US Nonfarm Payrolls (NFP) report on Friday before establishing new positions.

USD/JPY 4-hour chart

Technical Analysis

The USD/JPY pair maintains a constructive near‑term tone and is seeking to extend momentum above 160.20, the 200‑period Simple Moving Average (SMA) on the 4‑hour chart. The 61.8 % Fibonacci retracement at 160.64 may serve as the next upside obstacle, followed by additional resistance at the 78.6 % level near 162.10 and the previous swing high around 163.96.

On the downside, initial support is located at the 200‑period SMA at 160.20, ahead of the 50 % retracement at 159.62. A breach below this level would expose the 38.2 % retracement at 158.59 and the deeper 23.6 % retracement at 157.32 as subsequent demand zones.

Japanese Yen FAQs

The Japanese Yen (JPY) ranks among the most heavily traded currencies globally. Its value is primarily shaped by the performance of the Japanese economy, and more specifically by Bank of Japan policy, the spread between Japanese and US bond yields, and risk sentiment among market participants, among other factors.

One of the Bank of Japan’s objectives is to manage currency dynamics, making its actions crucial for the Yen. The BoJ has occasionally intervened directly in foreign exchange markets, typically to curb the Yen’s strength, although it does so sparingly due to concerns from its major trading partners. The BoJ’s ultra‑loose monetary stance from 2013 to 2024 induced the Yen to weaken against its major currency counterparts, driven by a widening policy divergence between the Bank of Japan and other leading central banks. Recently, the gradual unwinding of this ultra‑loose stance has offered some support to the Yen.

Over the past decade, the BoJ’s adherence to an ultra‑loose monetary stance has widened the policy gap with other central banks, especially the US Federal Reserve. This divergence widened the spread between 10‑year US and Japanese bonds, which underpinned the US Dollar against the Japanese Yen. The BoJ’s 2024 decision to progressively phase out its ultra‑loose policy, alongside interest‑rate cuts by other major central banks, is now narrowing this spread.

The Japanese Yen is frequently regarded as a safe‑haven currency. In periods of market turbulence, investors tend to shift funds into the Japanese currency because of its perceived reliability and stability. Such turmoil is likely to bolster the Yen’s value relative to other, more volatile currencies.

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