Yen Bears Dominate as USDJPY Grinds Below 164

The USDJPY pair continues to grind below 164 as a significant differential between interest rates in Japan and the US remains unaddressed. The dollar side is driving the move, with the Dollar Index sitting at a one-month high of 101.52 on speculation that the Federal Reserve could raise rates as soon as this week.

The Bank of Japan's policy rate sits at 1.00%, while the Fed's target midpoint is 3.625%. This gap of roughly 250-275 basis points provides a profitable opportunity for leveraged positions, which have no reason to close while it holds.

A poll of 87 economists found that 86% expect a 25 basis point hike to 1.25% by the end of December, with markets pricing roughly 80% odds of an October move. Even if the BoJ delivers and the Fed holds, the differential narrows but remains comfortably profitable.

Japan's Ministry of Finance deployed ¥11.7349 trillion, approximately $71.7 billion to $73.35 billion, buying yen after USD/JPY breached 160. The intervention record is discouraging for the yen, and markets have largely discounted repeated warnings from Japanese authorities that intervention is available.