Key Moments
- USD/JPY traded near a one-and-a-half-week high during the Asian session, extending its rebound from the 155.25-155.20 area.
- Japan’s wide rate differential, fiscal worries, and ongoing energy-related risks continued to pressure the Yen and support carry trades.
- Despite stronger Japanese sentiment data and rising BoJ hike expectations, USD/JPY remained underpinned ahead of key US CPI and PPI releases.
Fundamental Drivers Supporting USD/JPY
The USD/JPY pair strengthened during the Asian session on Wednesday, reaching a one-and-a-half-week high as buyers aimed to push prices beyond the mid-159.00s. The move extended the pair’s recent recovery following a decline to the 155.25-155.20 band, which had marked the lowest levels since May earlier this month.
The effect of the first joint US-Japan currency intervention since 1998 has largely dissipated, with the substantial interest rate gap between Japan and other major economies keeping carry trades in place and weighing on the Japanese Yen (JPY). This rate disparity continues to act as a structural headwind for the currency and a support for USD/JPY.
Additional pressure on the JPY has emerged from domestic policy developments. Prime Minister Sanae Takaichi’s push for aggressive economic stimulus measures and tax reductions has heightened concerns regarding Japan’s deteriorating fiscal outlook. At the same time, economic risks tied to ongoing energy disruptions associated with the Iran war are adding to the negative sentiment toward the Yen, further underpinning the USD/JPY pair.
Japanese Data and BoJ Expectations Fail to Lift the Yen
Recent survey data suggested an improvement in Japanese business sentiment, but this has not translated into sustained support for the Yen. The Reuters Tankan survey showed that the sentiment index for Japanese manufacturers rose to 18 in August from 13 in the previous month, the highest reading since March 2026. In services, the non-manufacturing index climbed to 28 from 25 in July.
Market participants have also increased their expectations for another rate hike by the Bank of Japan (BoJ). Tokyo Tanshi data indicated that traders were pricing in a 66% probability of a policy move in September. Despite this shift, these developments have not meaningfully bolstered demand for the JPY or reversed the broader constructive tone surrounding USD/JPY.
Firm US Dollar Backed by Fed Expectations
On the US side, the Dollar attempted to extend its gains for the week, supported by views that higher oil prices could re-ignite inflationary pressures and prompt the Federal Reserve (Fed) to adopt a more hawkish stance. According to the CME Group’s FedWatch Tool, market pricing reflected over a 75% likelihood that the Fed would raise interest rates at least once by the end of 2026.
These expectations continued to underpin elevated US Treasury yields, which, in combination with ongoing geopolitical uncertainty, lent support to the greenback and to USD/JPY. At the same time, investors were cautious ahead of critical inflation data, with the US Consumer Price Index (CPI) scheduled for release later in the day and the US Producer Price Index (PPI) due on Thursday. Both data points were seen as key inputs for shaping views on the Fed’s future policy path and, by extension, the trajectory of the Dollar.
Developments in the Middle East crisis were also in focus as a potential source of further moves in the USD and USD/JPY. Taken together, these factors reinforced the case for an ongoing recovery in the pair from its earlier lows in the 155.25-155.20 area.
Technical Picture: USD/JPY Facing Overhead Resistance
From a technical perspective, USD/JPY traded below key Fibonacci retracement levels associated with the decline following the intervention. The pair was holding under the 50.0% retracement level of that post-intervention drop, as well as under the 61.8% retracement at 160.63. This configuration suggested that the upside momentum was beginning to fade and that rallies were increasingly meeting selling interest at higher levels.
On the downside, initial support appeared at the 38.2% retracement level at 158.58, followed by the 23.6% retracement at 157.31. A more pronounced pullback would bring into view a structural support area near 155.26.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Monthly Performance of the Japanese Yen
The following table presents the percentage changes of the Japanese Yen (JPY) against a set of major currencies this month. Over the period shown, the JPY recorded its strongest relative performance versus the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | -0.26% | -0.05% | -0.59% | -0.40% | 0.19% | 0.83% | |
| EUR | 0.08% | -0.19% | 0.00% | -0.49% | -0.32% | 0.27% | 0.90% | |
| GBP | 0.26% | 0.19% | 0.24% | -0.28% | -0.13% | 0.47% | 1.12% | |
| JPY | 0.05% | 0.00% | -0.24% | -0.50% | -0.49% | 0.05% | 0.82% | |
| CAD | 0.59% | 0.49% | 0.28% | 0.50% | 0.14% | 0.31% | 1.50% | |
| AUD | 0.40% | 0.32% | 0.13% | 0.49% | -0.14% | 0.62% | 1.27% | |
| NZD | -0.19% | -0.27% | -0.47% | -0.05% | -0.31% | -0.62% | 0.65% | |
| CHF | -0.83% | -0.90% | -1.12% | -0.82% | -1.50% | -1.27% | -0.65% |
The accompanying heat map illustrates these percentage moves, using the currency from the left-hand column as the base and the one from the top row as the quote. For instance, selecting the Japanese Yen as the base currency in the left column and moving horizontally to the US Dollar cell shows the percentage change for JPY (base)/USD (quote).
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