The USD/JPY has declined as two months of rising inflation in Japan have increased expectations for a rate hike by the Bank of Japan in September. The US Dollar declines following the Treasury’s unexpected decision to double long-dated debt buybacks in an effort to mitigate rising bond yields. Tensions escalated as Iranian Foreign Minister Abbas Araghchi characterised the forthcoming US sanctions as a desperate measure destined for failure. USD/JPY extended its losses for the second consecutive day following intraday volatility, trading around 158.80 during Asian hours on Monday. The pair declines as the Japanese Yen gains ground on stronger-than-expected inflation data, which accelerated for a second straight month. Rising price pressures strengthen the anticipation that the Bank of Japan may increase interest rates as soon as September, in line with Governor Kazuo Ueda’s recent hawkish remarks regarding the acceleration of policy normalisation.
Strategists at Scotiabank note that the latest Japan inflation release has “added marginally to conviction that the BoJ will tighten next month,” with “20bps or hikes reflected in swaps.” They add that the “price data helped lift the JPY to a 0.4% rise against the soft USD on the day,” underscoring how the market is increasingly aligning with the prospect of near-term policy tightening by the BoJ. Additionally, the USD/JPY pair loses ground as the US Dollar struggles under pressure from newly announced fiscal moves in the United States. The Treasury Department surprised financial markets by pledging to at least double its buybacks of longer-dated government debt in an attempt to rein in rising bond yields. Treasury Secretary Scott Bessent observed that buybacks might exceed $4 billion, a tactical initiative intended to convey that high yields do not truly reflect the core economic fundamentals.
However, the downside of the Greenback could be constrained as safe-haven demand rises in response to escalating geopolitical tensions in the Middle East. Tensions escalated following the remarks of Iranian Foreign Minister Abbas Araghchi, who characterised the impending US sanctions as a desperate measure that would ultimately prove ineffective in undermining Tehran. Adding to the friction, Iranian Security Chief Mohsen Rezaei warned of “earthquake-like” retaliation if US President Donald Trump takes further action, reinforcing risk-off sentiment in global markets. In the daily chart, USD/JPY is positioned at 158.80, maintaining a bearish near-term outlook as it stays beneath both the short-term and medium-term moving averages. The nine-period Exponential Moving Average and the 50-period EMA act as immediate and secondary resistance levels, indicating that any rallies may be limited as long as the price remains below this cluster.
The 14-day Relative Strength Index at 42.67 remains below the midline, indicating a lack of strong bullish momentum and supporting a downside bias rather than signalling a clear oversold condition. On the topside, initial resistance is situated at the nine-period EMA near 159.03, with additional supply anticipated at the 50-period EMA around 160.13 should buyers endeavour a recovery. In the absence of any nearby technical supports indicated by the current dataset, the pair seems susceptible to additional declines until a new demand zone emerges. Consequently, attention is directed toward the price’s response to the 159.03 threshold in the forthcoming sessions.
