The Japanese Yen has dropped by 0.2% against the US Dollar, placing it in the middle range among G10 currencies. Positive GDP data for Q3, which showed a contraction of 1.8%, did not significantly affect the market. Important data to watch this week includes CPI figures set to be released on Friday, with expectations of stability at around 3.0% for both headline and core inflation. The Bank of Japan is leaning towards tighter monetary policy, with rate hikes anticipated in December and January at 8 and 18 basis points, respectively.

USD/JPY Technicals

Technical indicators for USD/JPY show an upward trend, with the Relative Strength Index in the mid-60s. Resistance levels are seen at 155, with further resistance possible at 157.50. The FXStreet Insights Team provides curated observations from market experts along with additional analyses from both internal and external sources. The current rise in USD/JPY reflects the significant interest rate gap between the U.S. and Japan. The market has largely overlooked Japan’s unexpected GDP contraction, focusing instead on Friday’s inflation data. A stable CPI reading of around 3.0% could further weaken the yen. Given this bullish setup, traders might want to buy call options on USD/JPY. Strike prices near the 155 resistance level look appealing for short-term trades, with 157.50 as a secondary target if momentum continues. The market is pricing in only a slight chance of a rate hike by December, which supports holding these bullish positions until the end of the year.

Market Intervention History

However, caution is advised as the pair approaches levels that have led to official action in the past. Recall that in spring 2024, the Ministry of Finance intervened directly in the market to strengthen the yen when rates surpassed 158. This history suggests that verbal warnings from officials may increase, creating potential volatility and limiting upside potential for now. The ongoing pressure on the yen is driven by stubborn inflation. Japan’s national core CPI was recently recorded at 2.8% for October, marking over two years above the Bank of Japan’s 2% target. In contrast, the U.S. economy’s resilience has prevented the Federal Reserve from signaling any upcoming rate cuts, keeping the dollar’s yield advantage intact. This fundamental difference remains the primary driver behind the dollar’s strength against the yen. Create your live VT Markets account and start trading now.

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