The growing risks of currency intervention and the high demand for safe-haven assets are boosting the yen. However, the Bank of Japan’s caution is putting pressure on the Japanese currency. As a result, after a sharp rally, the USD/JPY pair may consolidate. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Bank of Japan remembers deflation.
- Tokyo intensifies verbal interventions.
- The US stock market pullback helps the yen.
- Long trades on the USDJPY pair can be considered on a breakout of 153.75.
Weekly Fundamental Forecast for Yen
In October, the yen was the worst-performing G10 currency amid a reassessment of fiscal risk premiums and shifting market expectations for the Bank of Japan’s overnight rate. The new prime minister aims to stimulate the economy with fiscal measures, and the Takaichi trade has triggered a rally in the USD/JPY pair. Despite government statements that it will not interfere in monetary policy, BoJ doves have become bolder. However, verbal interventions and growing demand for safe-haven assets are casting doubt on the pair’s continued upward trend.
G10 Currencies’ Performance In October
Source: Bloomberg.
Following the Bank of Japan’s October meeting, the futures market reduced the likelihood of the continuation of the monetary policy normalisation cycle in 2025 to 48%. The derivatives market does not expect an overnight rate hike until March–April. The yield spread between US and Japanese bonds is expected to remain wide for a long time, which will allow carry traders to remain active and put pressure on the yen.
With Sanae Takaichi in power, the doves on the Governing Board have become more confident. The minutes from the previous meeting reveal that certain members referenced Japan’s prolonged battle with deflation. Therefore, the BoJ should exercise caution and avoid mimicking the actions of other central banks by resorting to the same aggressive monetary restrictions employed in 2022–2024.
Although the conditions for raising rates are gradually coming together, the Bank of Japan should avoid taking unexpected steps. The Governing Board was probably referring to the acceleration of consumer prices in Tokyo, which is a leading indicator of national inflation.
Tokyo CPI Change
Source: Bloomberg.
However, markets are not driven by monetary policy alone. The rally in USD/JPY quotes makes the government frown, which, combined with the correction in US stock indices and growing demand for safe-haven assets, is putting pressure on bulls. According to Japanese Finance Minister Satsuki Katayama, there are one-sided and rapid movements in the Forex market. Her department is closely monitoring events and is ready to intervene at any moment.
The last time Tokyo resorted to currency intervention was in July 2024, when the USD/JPY pair traded at 160. Perhaps this is why Goldman Sachs and Bank of America claim that 155 is not a line in the sand. However, the government has previously expressed concern about excessive yen fluctuations, rather than about reaching a specific level. In October, the yen slid much faster than in June last year. Intervention in the foreign exchange market cannot be ruled out.
Weekly USDJPY Trading Plan
Given all the factors, the USD/JPY pair may enter a consolidation phase. At the same time, long positions can be increased if the pair breaks above the 153.75 resistance level. Conversely, if the price fails to stay above this level, a sell-off may start.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDJPY in real time mode
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