USD/JPY Volatility Persists Amid Dollar Strength and Intervention Fears

The USD/JPY exchange rate has seen mixed results recently, reflecting the ongoing uncertainty in the market. While the pair fell by more than 1% last week, it rebounded slightly this week with a gain of around 0.04%. This volatility is largely due to the conflicting forces driving the currency.

On one hand, expectations of a more aggressive Federal Reserve continue to support the dollar. The market currently prices in a more than 70% probability of another rate increase at the October 28 meeting, which could take the benchmark rate to 4.25%. This higher-rate backdrop benefits the dollar by making it more attractive for investments.

On the other hand, concerns about potential intervention to support the yen have returned to the spotlight. The possibility of fresh intervention remains an important market theme following the coordinated action taken at the end of July. The recent meeting between Donald Trump and Japan's Prime Minister has revived speculation that authorities could take coordinated action if yen weakness intensifies further.

The technical analysis suggests a bearish trendline is under pressure, but the pair is currently trading near its base, making it difficult for sellers to regain control. If bearish momentum fails to return consistently, this structure could begin to lose relevance and open the door to a more established bullish recovery.