US Dollar Strength Pushes Yen to New Lows Amid Fed Rate Hike Speculation
The USD/JPY pair is gaining traction early Tuesday, trading above the 158.00 mark as the US Dollar maintains its bullish momentum. The USD Index (DXY) is nearing its highest level since April 2025, despite a slight pullback in expectations for a Federal Reserve (Fed) rate hike in October. Recent US macro data showed moderating inflation and a cooling labor market, reducing immediate pressure on the Fed to raise rates. However, traders still see an 85% chance of a rate hike by year-end, supported by geopolitical tensions and elevated US bond yields.
The Japanese Yen (JPY) continues to weaken amid diminishing chances of aggressive tightening by the Bank of Japan (BoJ). Three sources close to the central bank indicated caution about another rate hike later this month. BoJ Governor Ueda emphasized a gradual tightening path, citing moderate economic recovery and favorable business sentiment. The BoJ's commitment to anchoring inflation around 2% and its constructive outlook for the Yen provide some resilience, but market concerns over Japan's fiscal policies and high public debt weigh on the currency.
Technical analysis shows the USD/JPY pair holding above key Fibonacci supports, with spot prices consolidating just under the 61.8% retracement level at 157.47. Bulls face resistance at 158.73, while initial support is at 156.99. Traders await the FOMC meeting minutes and Fed speeches for further direction, with potential intervention by Japanese officials also in focus.