USD/JPY is experiencing upward momentum, approaching 157.55 during the early hours of Tuesday’s Asian session. The Bank of Japan’s absence of hawkish guidance following last week’s rate hike exerts downward pressure on the Japanese Yen. Traders are currently assigning a probability of 56.5% to the likelihood of a Federal Reserve rate increase of at least 25 basis points in October. The USD/JPY pair demonstrates resilience, reaching approximately 157.55 in the early trading hours on Tuesday. A lack of explicitly hawkish guidance from the Bank of Japan after the rate hike last week undermines the Japanese Yen against the US Dollar. Federal Reserve policymakers are scheduled to address the public later on Tuesday, featuring remarks from John Williams, Philip Jefferson, and Thomas Barkin. The BoJ raised the interest rate by 25 basis points last week, reaching its highest level in 31 years at 1.25%. This decision was made with a split of 7-2 among policymakers. Swaps markets indicate a probability of less than 20% for the upcoming policy meeting at the end of October, while there is a 90% likelihood of a rate increase factored in for the December policy decision.
Traders are vigilant regarding potential currency intervention by Japanese authorities aimed at supporting the JPY. The Nikkei newspaper reported that Japanese officials conducted rate checks. A rate check involves authorities soliciting currency quotes from banks to assess market conditions, which traders interpret as a signal for potential currency intervention. A hawkish stance from the Fed could bolster the Greenback in the near term. St. Louis Fed President Alberto Musalem indicated on Monday that the US central bank is likely to implement additional interest rate hikes to combat inflation driven by robust demand and a commodity price shock that extends beyond oil. Traders are currently assigning approximately 56.5% probability to a rate increase of at least 25 basis points at the Federal Reserve’s October meeting, as indicated by the CME FedWatch tool, an increase from 43.5% the previous week. Analysts highlight that the catalyst for the Yen’s late-Friday rebound was “reports that the BoJ had conducted a rate check during the New York trading session,” which they say sent “a clear signal that they are prepared to intervene again if the yen continues to weaken.”
MUFG/BTMU add that this “rate check should help to dampen market expectations for how much the yen will be allowed to weaken in the near-term as USD/JPY moves closer to the 160.00-level,” effectively reinforcing the perception of an official ceiling on further Yen depreciation in the current environment. The Fed’s Musalem conveys a notably hawkish stance, achieving an 8/10 on the FXS Speechtracker, which exceeds the historical average of 7.4/10 and highlights a more pronounced inclination toward tighter monetary policy. Musalem warns that without additional policy restraint, inflation is likely to remain significantly above the 2% target over the next 18 months. He emphasises that even when excluding supply shocks, underlying price pressures remain elevated at approximately 3%, with business contacts anticipating price increases nearing 3% as well. The preference for “earlier and incremental” rate hikes, coupled with the perspective that the labour market is approaching full employment and is not the primary driver of inflation, strengthens the argument for further FED tightening and, on balance, bolsters the Dollar. The FXS Fed Sentiment Index increases by 0.42 points to 149.96, reinforcing a distinctly hawkish position significantly above the neutral threshold of 100 and consistent with the high reading from the FXS Speechtracker.
This combination of a stronger-than-baseline speech score and a high FXS Fed Sentiment Index level signals persistent upside risks for U.S. yields and the Dollar, with markets likely to price in further rate increases rather than an imminent pivot. In the daily chart, USD/JPY exhibits a bearish near-term bias, as the spot remains below the 100-day moving average and significantly under the upper Bollinger band. Price has moved back above the Bollinger middle band support, indicating a potential stabilisation within the volatility envelope. Meanwhile, the Relative Strength Index (14) at approximately 52 reflects a neutral-to-mildly positive momentum that has yet to contest the existing downside structure. On the topside, initial resistance is observed at the 100-day moving average at 159.55, followed by a secondary cap at the upper Bollinger band near 161.10. On the downside, immediate support aligns with the Bollinger middle band at 156.65, with a deeper floor at the lower Bollinger band around 152.18, where buyers would be expected to show more interest if the pair extends its decline.
