• USD/JPY softens to around 158.25 in Tuesday’s early Asian session.
• Japanese PPI inflation unexpectedly cooled in September.
• Fed’s Hammack said rate hikes are possible.

The USD/JPY pair loses ground to near 158.25 during the Asian trading hours on Tuesday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) despite softer Japanese Producer Price Index (PPI) inflation data. Traders remain on high alert for currency intervention from Japanese authorities to prop up the JPY.

Data released by the Statistics Bureau of Japan on Tuesday showed that Japan's wholesale prices rose 6.8% YoY in September. This figure was slow from the previous month but indicates mounting inflationary pressure that ‌keeps alive market expectations of a near-term interest rate hike.

"Wholesale inflation will likely re-accelerate given strong uncertainty over the Middle East conflict, which is keeping crude oil prices elevated," said Masato Koike, a senior economist at Sompo Institute Plus.

"But there's no sign of inflationary pressure accelerating sharply for the time being," heightening the chance that the BOJ will stand pat in October and wait until December to raise interest rates again, Masato added.

Cleveland Federal Reserve (Fed) President Beth Hammack said on Monday the US central bank should move "relatively quickly" ‌to a restrictive monetary policy stance in order to control inflation. Hammack also advocated for swift and gradual rate adjustments.

According to CME FedWatch, traders put the probability of rates remaining unchanged at the next meeting at more than 80.6%, while the probability of an increase at the final meeting of the year in December was nearly 84.7%.

Traders brace for the key US inflation reports later this week for fresh impetus. The US Consumer Price Index (CPI) inflation report is due on Wednesday, followed by Producer Price Index (PPI) and Retail Sales data on Thursday. These reports could provide further direction on the Federal Reserve’s policy path.

USD/JPY outlook stays anchored in tight range

Strategists at UOB Group maintain their short-term range-trading stance on USD/JPY, noting that since early October they have been “tracking our range-trading view in USD” as price action has remained contained. Recalling their latest update on Friday, 09 Oct, when spot was at 158.05, they highlighted that “we continue to expect USD to trade in a range, but a narrower 157.00/158.70 range is likely to contain price movements for now.” UOB adds that this 1–3 week view “remains unchanged,” with the Dollar expected to stay capped within that band in the near term.

Hammack leans hawkish as Fed rhetoric points to tighter policy bias

Fed’s Hammack delivers a notably more hawkish tone, with the 8.4/10 FXS Speechtracker score standing above the 7.5/10 historical average and underscoring a stronger bias toward tighter policy. The emphasis on the need for higher interest rates, broad-based and persistent inflation pressures, and the risk of an entrenched inflationary mindset, alongside a preference for relatively quick, smaller rate moves, signals a clear inclination toward maintaining or increasing restrictiveness despite acknowledging neutral financial conditions and a mid-to-high 2% trend inflation that is slow to return to target. Hammack’s focus on demand-side pressures, including AI-driven demand that is “not self-correcting,” and on firms planning price hikes beyond cost increases, reinforces the message that the Fed should err on the side of tighter policy to re-anchor inflation expectations.

The FXS Fed Sentiment Index rises by 0.59 points to 138.92, confirming a solid move deeper into hawkish territory well above the neutral 100 threshold. This uptick, in tandem with the elevated FXS Speechtracker score, signals that Fed communication is skewing more decisively toward sustained tight monetary policy, a backdrop typically supportive of the Dollar against lower-yielding peers.

Technical Analysis: USD/JPY remains capped below the 100-day SMA

In the daily chart, USD/JPY holds below the 100-day Simple Moving Average (SMA), which keeps the broader tone capped despite the recent rebound. Price remains above the 20-day Bollinger middle band, suggesting near-term support, while the Relative Strength Index (14) around 54 hints at mildly constructive momentum that is yet to overcome the prevailing overhead resistance.

On the topside, initial resistance is seen at the 20-day Bollinger upper band near 159.10, ahead of the more significant 100-day SMA at 159.50, which would need to be reclaimed to ease downside pressure. On the downside, immediate support emerges at the 20-day Bollinger middle band at 157.65, followed by the lower band around 156.25, where a break would likely reinforce the bearish bias and expose deeper losses.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.