Dollar Gains Against Yen as Support Holds Above Key MA

Key Moments

Yen Retreats Despite Stronger Current Account

The Japanese Yen reversed earlier gains and slipped into negative territory against the US Dollar during the early European session on Thursday. The USD/JPY pair was last seen up 0.13%, trading close to 158.23 as Yen selling re-emerged.

The currency weakened even after Japan’s August Current Account data exceeded expectations. The surplus widened to 4,062 billion yen, above consensus estimates of 3,194 billion yen and higher than the previous reading of 2,988 billion. Despite this stronger external balance, the Yen lost ground against the Dollar.

Policy Signals from Tokyo

Japan Prime Minister (PM) Sanae Takaichi dampened expectations for a reflationary policy mix combining fiscal and monetary measures to spur growth. Such an outcome could support the Bank of Japan (BoJ) in maintaining its monetary tightening trajectory. According to Reuters, Takaichi also pledged to limit new debt issuance to around 40 trillion yen ($253 billion).

Dollar Supported by Rising Yields

On the US side, the Dollar remained underpinned by firm bond yields. The US Dollar Index (DXY), which measures the Greenback against six major peers, traded marginally higher near 102.28 at press time. The index was hovering close to its recent annual peak of 102.54 reached on Monday.

US 10-year Treasury yields were reported up 0.6% to around 5.32%. Selling pressure in US government debt persisted as Federal Reserve (Fed) officials continued to highlight upside inflation risks linked to energy shocks and strong demand associated with Artificial Intelligence (AI).

Japanese Yen Performance Snapshot

The article noted that the Japanese Yen was the weakest performer against the Swiss Franc among major currencies.

The referenced heat map compares percentage changes between major currencies, where the base currency is selected from the left column and the quote currency from the top row. For example, choosing the Japanese Yen as the base and moving horizontally to the US Dollar cell shows the percentage change for JPY (base)/USD (quote).

USD/JPY Technical Overview

On the daily chart, USD/JPY trades at 158.19 and continues to hold above the 20-day exponential moving average (EMA) at 157.54. This positioning indicates a constructive short-term setup and supports a bullish stance as the pair remains above its recent corrective lows.

The Relative Strength Index (RSI) stands at 55.15, remaining in positive territory while staying below overbought thresholds. This suggests that upward momentum is present but has not yet become excessively stretched.

Immediate downside support is identified at the 20-day EMA at 157.54, with the current 158.19 area acting as a key pivot zone where buyers have recently defended the move higher. As long as USD/JPY closes above 157.54 on a daily basis, the technical structure continues to favor additional upside. A clear break below this EMA would increase the risk of a deeper correction within the broader uptrend.

On the topside, the September 24 high at 159.04 is viewed as the main resistance level that the pair needs to overcome.

Background: Japanese Yen and Policy Drivers

The Japanese Yen (JPY) is one of the most actively traded currencies globally. Its value is broadly shaped by the performance of Japan’s economy, and more specifically by Bank of Japan policy decisions, yield differentials between Japan and the US, and overall market risk sentiment, among other influences.

One of the Bank of Japan’s mandates is currency control, making its actions critical for the Yen. The BoJ has at times intervened directly in foreign exchange markets, typically to weaken the Yen, though it limits such actions due to political sensitivities with major trading partners. The BoJ’s 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 gradual unwinding of this ultra-loose policy has given some support to the Yen.

Over the past decade, the BoJ’s commitment to very accommodative policy contributed to a widening yield gap between 10-year US and Japanese government bonds, benefiting the US Dollar over the Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, together with interest-rate cuts in other major economies, has started to narrow this spread.

The Japanese Yen is also widely regarded as a safe-haven asset. In episodes of market turbulence, investors often seek the Yen due to its perceived reliability and stability. Periods of elevated risk aversion tend to bolster the Yen’s value against currencies considered riskier.