Last Updated on 09/10/2026
- USD/JPY comes under renewed selling pressure after an intraday rebound triggered by weaker-than-expected Japanese economic data.
- Expectations of a Bank of Japan rate hike and the risk of currency intervention lend support to the Japanese Yen, limiting upside potential for the pair.
- A weaker US Dollar adds further pressure on USD/JPY, although the pair’s downside appears to remain constrained.
USD/JPY Remains Below 158.00 as Mixed Fundamentals Limit Directional Momentum
The USD/JPY pair struggles to extend its modest gains from the Asian session on Friday, trading near the lower end of its daily range and below the 158.00 level amid broad weakness in the US Dollar (USD). Nevertheless, the pair continues to fluctuate within a familiar range established over the past week as conflicting fundamental factors keep traders cautious.
The Japanese Yen (JPY) came under slight pressure after data released earlier in the day revealed that Japan’s household spending declined for the ninth consecutive month in August. However, the contraction was smaller than anticipated, while real wages increased for an eighth straight month. These developments reinforce expectations that the Bank of Japan (BoJ) could continue tightening monetary policy. Additionally, speculation that Japanese authorities may intervene to support the Yen keeps traders on alert. Combined with the softer US Dollar, these factors limit the USD/JPY pair’s upside potential.
BoJ’s Gradual Rate Hikes Continue to Reduce the Yen’s Carry Trade Appeal
Rabobank’s foreign exchange strategists observed that although the BoJ delivered an expected interest rate increase at its September policy meeting, its forward guidance fell short of the market’s more hawkish expectations. Nevertheless, they emphasized that the central bank’s gradual tightening strategy continues to diminish the Yen’s attractiveness as a funding currency. As Japanese interest rates rise, the traditional appeal of borrowing Yen to finance higher-yielding investments elsewhere gradually weakens.
US President Donald Trump stated on Thursday that Washington would not resume military strikes against Iran before the November 3 midterm congressional elections. The announcement helped contain crude oil prices and eased concerns about further inflationary pressures. Meanwhile, strong demand at a US 30-year Treasury bond auction prompted a pullback in government bond yields, pushing the US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, lower from its 18-month peak. These developments further restrict the potential for a sustained advance in USD/JPY.
However, market participants continue to assign a probability of more than 80% to a Federal Reserve (Fed) interest rate hike in December. Persistent geopolitical tensions surrounding the US-Iran confrontation over Tehran’s nuclear program could also underpin demand for the safe-haven US Dollar. Iran’s Atomic Energy Organization chief, Mohammad Eslami, reportedly reiterated that the country would neither halt uranium enrichment nor surrender its uranium stockpile. This stance keeps geopolitical risks elevated and could provide additional support for the Greenback.
Despite these competing influences, uncertainty surrounding the broader fundamental outlook has discouraged traders from establishing aggressive directional positions, leaving USD/JPY confined to a relatively narrow trading range. Attention now turns to the preliminary University of Michigan Consumer Sentiment Index and inflation expectations data from the United States. Speeches by influential Federal Open Market Committee (FOMC) officials, alongside developments in the geopolitical landscape, could also influence demand for the US Dollar and create short-term trading opportunities ahead of the weekend.
Technical Analysis
The USD/JPY pair retains a bullish near-term outlook as prices remain above the 100-period Simple Moving Average (SMA) on the four-hour chart. The ongoing consolidation could represent a pause within the broader upward trend rather than a reversal, suggesting that the bullish structure remains intact despite the absence of strong buying momentum.
On the downside, initial support is located around 157.59, near the 100-period SMA. This moving average could provide a cushion against further declines as long as the pair remains above it. On the upside, the 158.50 region marks a key resistance area near the upper boundary of the current trading range. A sustained break above this level would strengthen the bullish outlook and potentially pave the way for further gains.
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