Japanese Yen Weakens as USD Buying Persists Despite Intervention Fears

The Japanese Yen (JPY) continued its decline on Tuesday as sustained buying of the US Dollar (USD) offset concerns over potential intervention by Japanese authorities. The USD/JPY pair rose above the 158.00 mark during early European trading, supported by strong bullish sentiment around the USD. This sentiment is driven by geopolitical uncertainties, elevated US bond yields, and resilient Middle Eastern crude exports, which have eased supply concerns and reduced pressure on the Federal Reserve to raise interest rates.

The USD Index (DXY) remains near its highest level since April 2025, despite receding October Federal Reserve (Fed) rate hike bets. Traders are still pricing in an over 85% chance of a rate hike by the end of the year. Meanwhile, the JPY is under pressure due to diminishing odds for more aggressive tightening by the Bank of Japan (BoJ). Three sources familiar with the central bank's thinking indicated that some BoJ policymakers are cautious about another interest rate hike later this month.

Bank of Japan Governor Ueda emphasized that Japan's economy is recovering moderately, with favorable business sentiment and accommodative financial conditions supporting a gradual tightening path. This reinforces expectations of further rate hikes, though market anxiety over Japan's expansionary fiscal policies and massive public debt continues to weigh on the JPY. Speculations of potential intervention by Japanese officials to prop up the domestic currency are keeping traders on high alert.

Technically, the USD/JPY pair maintains a bullish near-term bias above the 100-period Simple Moving Average (SMA) on the 4-hour chart. Spot prices are consolidating just under the 61.8% Fibonacci retracement at 157.47, with more significant resistance at the 78.6% retracement at 158.73. Initial support is seen at the 100-period SMA at 156.99, reinforced by the 50.0% Fibonacci retracement at 156.58.