USD/JPY Faces Another Psychological Test Amid Rising Yields

The USD/JPY pair is facing another psychological test as rising global yields and geopolitical risks pressure the low-yielding yen. A break above 159.60, the 50% retracement of its post-intervention decline, puts the 160 psychological level in focus.

However, momentum remains limited with exporters selling into rallies toward 160 and U.S. growth concerns tempering dollar enthusiasm. The CitiFX's U.S. Economic Surprise Index is near a three-month low and diverging from its counterpart measuring the global economy.

Subdued volatility and light speculative positioning suggest Tuesday's rise is not decisive, leaving scope for a retreat below 159 to ease bullish pressure. If USD/JPY holds above 160 for a period of time and eventually clears the 61.8% retracement of the 163.99-155.20 decline, the post-intervention bearish narrative may shift.

A cautious BOJ hike in September could steepen the JGB curve, weighing further on the yen and challenging a history of successful interventions. Against this backdrop, EUR/JPY is attracting interest as a way to play rising yields while reducing exposure to dollar-specific risks.