Japanese Yen slides to its weakest level against the US Dollar since late July amid fiscal worries and widening rate differentials

Last Updated on 02/09/2026

• USD/JPY remains supported by a mix of domestic and external factors.
• Japan’s growing fiscal challenges and the persistent interest rate gap with the US continue to weigh on the Japanese Yen.
• Expectations of further Fed tightening, alongside geopolitical uncertainty, are boosting demand for the US Dollar.

The USD/JPY pair traded close to its strongest level since July 31 during Wednesday’s Asian session, hovering around the 160.25–160.30 area after recent gains.

Pressure on the Japanese Yen intensified after a global bond selloff pushed Japan’s 10-year government bond yield to 3% for the first time since 1996. Rising borrowing costs are increasing concerns over the sustainability of Japan’s substantial debt burden, particularly as Prime Minister Sanae Takaichi pursues ambitious investment initiatives. These fiscal worries have weakened sentiment toward the Yen and provided additional support for USD/JPY.

At the same time, US Treasury Secretary Scott Bessent reiterated his view that the Bank of Japan should take stronger monetary action to address Yen weakness, reinforcing market expectations of a BoJ rate increase later this month. Despite the prospect of tighter policy, Japanese interest rates remain well below those in other major economies, especially the United States, preserving the attractiveness of Yen-funded carry trades and limiting support for the currency.

BoJ Under Growing Pressure as Markets Await Policy Signals

According to Rabobank strategist Jane Foley, scrutiny of the Bank of Japan has increased significantly as US officials continue to comment on Japanese monetary policy. She noted that Bessent recently intensified pressure on the central bank by expressing confidence that it would “do the right thing” and signaling a strong possibility of a rate hike later this month. Such remarks highlight the heightened focus on the BoJ’s next policy move as bond yields rise and the Yen remains under strain.

Meanwhile, the US Dollar continues to benefit from safe-haven demand amid escalating tensions between the United States and Iran. Growing expectations that the Federal Reserve could raise interest rates again, fueled by concerns that higher oil prices may keep inflation elevated, have also strengthened the Greenback.

Despite the favorable backdrop for USD/JPY, traders appear reluctant to make aggressive new bullish bets ahead of Friday’s US Nonfarm Payrolls report, which could provide important clues about the Fed’s policy outlook and the next directional move for the currency pair.

Technical Analysis: USD/JPY

USD/JPY maintains a positive short-term bias and is attempting to extend its advance after breaking above the key 200-period Simple Moving Average (SMA) on the 4-hour chart at 160.20. Sustained trading above this level suggests improving bullish momentum and keeps the focus on higher resistance targets.

The first upside objective is the 61.8% Fibonacci retracement level at 160.64. A decisive break above this barrier could open the door toward the 78.6% retracement near 162.10, followed by the previous swing high around 163.96.

On the downside, immediate support is located at the 200-period SMA around 160.20. Further weakness could see the pair test the 50% Fibonacci retracement at 159.62. A move below this level may accelerate selling pressure toward the 38.2% retracement at 158.59, with the 23.6% Fibonacci level near 157.32 serving as the next significant support zone.

Overall, the technical outlook remains constructive while USD/JPY holds above the 160.20 region, though traders may remain cautious ahead of Friday’s US Nonfarm Payrolls report.