Japanese Yen rises to seven-month high on BoJ rate hike bets
- USD/JPY tumbles to near 153.50 in Tuesday’s early European session.
- Expectations that the BoJ could raise interest rates next week underpin the Japanese Yen.
- Traders are now pricing a roughly 60% chance of a Fed rate hike this month.
The USD/JPY pair falls to around 153.50 during the early European trading hours on Tuesday. The Japanese Yen (JPY) strengthens to a seven-month high against the US Dollar (USD) amid growing expectations of a Bank of Japan (BoJ) interest-rate hike. The key US inflation data will be in the spotlight later this week.
Growing trader bets on a BoJ interest-rate increase fueled a sharp reversal in sentiment. Speculation over a potential shift in the Government Pension Investment Fund’s asset allocation also provides some support to the Japanese Yen.
Last week, BoJ board member Hajime Takata said that the central bank could take a more aggressive approach than expected. He said a 25-basis-point hike “is not necessarily set in stone,” and that generally speaking, back-to-back rate hikes would be a possibility, too.
Traders will closely monitor the upcoming US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation data, which could shape expectations for the Federal Reserve's (Fed) next policy move. Fed funds futures are now pricing in roughly a 60% probability of a hike, according to the CME FedWatch tool.
BoJ tightening expectations build as markets price faster shift
Analysts at HSBC observe that markets are increasingly positioning for a quicker shift in Bank of Japan policy than seen in recent years. They note that “markets now expect the Bank of Japan (BoJ) to tighten policy faster than it has done in recent years,” with “overnight index swaps imply[ing] around 75bp of cumulative hikes by April 2027 and even assign[ing] meaningful odds of a hike at the 18 September meeting, which stands out as unusual.” HSBC argues that these pricing moves “suggest investors anticipate a change in how the BoJ responds to inflation and growth risks.”
Technical Analysis: USD/JPY keeps a bearish vibe amid oversold RSI
In the daily chart, USD/JPY extends a sharp decline and maintaining a clearly bearish near-term bias as price holds well below the Bollinger Band midline and the 100-day simple moving average. The pair has also slipped under the lower Bollinger Band, underscoring intense downside pressure, while the Relative Strength Index (14) hovers in oversold territory around 25, hinting that although selling remains dominant, the downside momentum could begin to moderate.
On the topside, initial resistance is now seen at the former lower Bollinger Band area around 154.70, followed by the Bollinger Band midline near 158.45 and the 100-day SMA clustered close to 159.85. A more sustained recovery would need to reclaim that confluence before challenging the upper Bollinger Band near 162.20; until then, the broader technical structure suggests rallies are likely to be sold.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.