The move followed a boost in investor confidence after US President Donald Trump eased trade tensions, including stepping back from earlier threats of heavy tariffs on parts of Europe and signalling progress on a framework agreement over Greenland with NATO. Global equities responded positively, with US stocks rallying and gains spilling into Asian markets, weighing on the yen.
Pressure on the Japanese currency has also been amplified by turmoil in Japan’s bond market, where a sharp selloff earlier this week pushed long-dated government bond yields to record highs. The selloff has been linked to investor concerns over fiscal sustainability under Prime Minister Sanae Takaichi’s expansionary policy stance, alongside weak demand at a recent 20-year bond auction.
Despite the bearish tone, yen losses have so far been contained by expectations that Japanese authorities could step in to curb excessive currency weakness. Market participants are also reluctant to take aggressive positions ahead of the Bank of Japan’s (BoJ) two-day policy meeting, which concludes on Friday.
Policy Signals Limit Downside
While the BoJ is widely expected to keep its policy settings unchanged after raising its benchmark rate to 0.75% in December, attention is firmly on Governor Kazuo Ueda’s post-meeting comments for guidance on the timing of the next rate hike. A recent Reuters report suggested that some BoJ policymakers see scope for another increase as early as April.
Inflation dynamics continue to support a more hawkish outlook. Official data show that Japan’s inflation has remained above the BoJ’s 2% target for four consecutive years, while a December household survey indicated that consumers expect prices to keep rising over the medium term. A weaker yen could further intensify price pressures, potentially forcing the central bank to act sooner.
Japan’s Finance Minister Satsuki Katayama also recently hinted at the possibility of joint intervention with the United States to address sharp currency moves, a factor that may deter aggressive yen selling.
Dollar Strength Adds to Pressure
On the other side of the pair, the US dollar found support as the so-called “Sell America” trade faded amid easing trade-war fears. This provided an additional tailwind for USD/JPY, which extended its upward momentum. Investors are now looking ahead to key US data, including the Personal Consumption Expenditure (PCE) Price Index and the final reading of second-quarter GDP, for fresh direction.
Technical Picture
From a technical standpoint, USD/JPY has broken above key resistance near 158.15, reinforcing a bullish bias. Indicators such as the MACD and RSI point to continued upward momentum, although signs of slowing pace suggest near-term consolidation is possible.
A sustained move higher could open the way toward an 18-month peak near 159.45, while failure to hold above recent breakout levels may trigger a pullback toward short-term support around the 100-hour moving average.
For now, the yen remains on the defensive, with its near-term path likely to hinge on guidance from the BoJ and incoming US economic data.