Dollar Advances vs Yen as BoJ Doubts Cap Warning Impact

Key Moments

JPY Softens as Policy Uncertainty Overshadows Intervention Talk

The USD/JPY pair begins the new week with renewed strength, building on its recovery from Friday’s post-Bank of Japan (BoJ) dip to levels below 157.00. During Asian trading, the pair moves higher toward the 157.85 region, with buyers largely undeterred by fresh verbal intervention from Japanese authorities.

Japan’s Finance Minister Satsuki Katayama stated that the Joint FX statement with the United States remains in place and reiterated that the government is ready to act against “excessive or disorderly” weakness in the Japanese Yen (JPY). Despite this, the currency sees little support, as market participants remain focused on uncertainty surrounding the timing of the next BoJ rate increase.

The persistent and sizeable interest rate differential between Japan and other major economies continues to work against the low-yielding Yen, helping to underpin demand for USD/JPY even as policymakers attempt to signal a willingness to step in if moves in the currency become destabilizing.

Middle East Diplomacy Weighs on USD Safe-Haven Appeal

At the same time, the US Dollar (USD) faces resistance from shifting geopolitical dynamics. Diplomatic efforts in the Middle East act as a headwind for the Greenback’s safe-haven appeal. Iranian negotiators reportedly held a third consecutive day of talks with Qatari mediators on Sunday, seeking to finalize an agreement to end the US-Israeli war on Iran.

Iran is said to have put forward a 48-hour proposal to reopen the Strait of Hormuz, conditional on the United States fulfilling its terms. In parallel, US President Donald Trump commented that negotiations were progressing satisfactorily and that Iran was seeking a deal.

Trump also remarked that he has not ruled out further military action after the November 3 midterm elections. In addition, Iran’s Supreme Leader, Mojtaba Khamenei, reportedly instructed senior military officials to prepare for renewed confrontation with the US and Israel. These developments, along with fresh Ukrainian strikes on Russian oil refineries, help maintain a geopolitical risk premium in global markets.

Fed Expectations Support USD Despite Mixed Geopolitical Signals

Beyond geopolitics, the policy outlook for the US Federal Reserve (Fed) continues to favor USD bulls. US data released last Thursday indicated ongoing economic resilience and continuing inflation pressures. Elevated crude oil prices are adding to inflation concerns, reinforcing expectations that the Fed could tighten policy further.

According to the CME Group’s FedWatch Tool, market participants are pricing in roughly a 75% probability that the Fed will raise interest rates in December. This conviction that borrowing costs may rise again suggests that the broader directional bias for both the US Dollar and the USD/JPY pair remains tilted to the upside.

USD/JPY Technical Picture: Testing Key Fibonacci Levels

On the technical front, USD/JPY is challenging the 23.6% Fibonacci retracement level at 157.80, maintaining a mildly bullish tone in the near term. The pair is holding above the 100-period Simple Moving Average (SMA) on the hourly chart, located at 157.75, indicating that buyers are stepping in on intraday pullbacks as price action gravitates toward the upper end of the recent retracement range.

The next notable resistance is seen at the cycle high reference around 158.34. A sustained move beyond this area would signal scope for an extension of the broader uptrend.

On the downside, initial support aligns with the 23.6% Fibonacci retracement at 157.80, followed by deeper support at the 38.2% retracement near 157.47 and the 50.0% retracement at 157.21.