Yen Struggles as USD/JPY Nears One-Month High

Key Moments

USD/JPY Holds Firm as Yen Sentiment Remains Fragile

The USD/JPY pair remains broadly stable below the 160.00 psychological level during the Asian session on Tuesday, trading close to the one-month high revisited in the previous session. The price action reflects a cautious tone among Japanese Yen (JPY) buyers, who continue to grapple with structural and policy-related headwinds.

Persistent anxiety over Japan’s substantial national debt, climbing long-term funding costs, and ongoing expansionary fiscal policies weigh on overall confidence in the JPY. At the same time, the wide interest rate differential between Japan and other major economies, including the United States, keeps JPY bulls under pressure. This backdrop provides a supportive environment for the USD/JPY pair.

Fed Expectations and Geopolitical Tensions Support the Dollar

The US Dollar (USD) attracts renewed buying interest after easing from an over two-week high in the prior session. The move is driven by hawkish expectations surrounding the US Federal Reserve (Fed) and escalating geopolitical risks involving the United States and Iran.

Market participants increased their wagers on a potential Fed rate hike in September after comments from Fed Chair Kevin Warsh at the Jackson Hole Symposium on Friday. Warsh noted that inflation remains elevated and indicated on Friday that interest rates may need to rise further if progress on reducing price pressures stalls. In addition, concerns over inflation linked to firmer energy prices reinforce the Fed’s tightening bias, while geopolitical uncertainty continues to bolster demand for the safe-haven Greenback.

Middle East Developments Add to Risk Premium

In the latest phase of the Middle East crisis, US forces struck two rocket launchers on Iran’s Larak Island in the Strait of Hormuz on Sunday, which led to an Iranian counterattack on US air bases in Jordan. Following this exchange, described as the first direct confrontation in a month, US President Donald Trump threatened additional strikes on Iran. The tensions have lent support to crude oil prices and the USD.

Overall, the fundamental landscape is skewed toward USD/JPY upside, although speculation about potential coordinated intervention by Tokyo and Washington is limiting further gains in the pair. Looking ahead, traders are focused on key US economic data releases this week, beginning with the ISM Manufacturing PMI later today. The market’s main attention, however, is on the US Nonfarm Payrolls (NFP) report scheduled for Friday.

USD/JPY Technical Picture – 4-Hour Chart

On the technical front, USD/JPY maintains a neutral short-term bias while consolidating above the 100-period Simple Moving Average (SMA) at 159.19 on the 4-hour chart, signaling underlying buying interest. Upside momentum is constrained by the 200-period SMA at 160.26, which continues to cap advances as the pair oscillates around the 50.0% Fibonacci retracement level at 159.59.

Immediate resistance lies just above the 200-period SMA at the 61.8% Fibonacci retracement level of 160.62, followed by additional hurdles at 162.09 and 163.96. On the downside, initial support is clustered around the 50.0% retracement at 159.59 and the 100-period SMA at 159.19. Below these levels, deeper Fibonacci supports are located at 158.56 and 157.28, with a more significant structural base near 155.21.