Japanese Yen vulnerable amid intervention fears and fiscal concerns

The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Friday, though remains close to the lowest level since mid-January, touched the previous day. Comments from Japan’s Finance Minister Satsuki Katayama fueled speculations that authorities would step in to stem further JPY weakness. Apart from this, a turnaround in the global risk sentiment – as depicted by a generally weaker risk tone around the equity markets – turns out to be another factor offering some support to the safe-haven JPY.

The upside for the JPY, however, seems limited as investors remain concerned about Japan’s ailing fiscal position on the back of Prime Minister Sanae Takaichi’s pro-stimulus stance. Furthermore, market participants seem convinced that the Bank of Japan (BoJ) would delay raising interest rates, which should contribute to capping the JPY. Meanwhile, the US Dollar (USD) sits near its highest level since late May amid less dovish Federal Reserve (Fed) expectations. This could lend support to the USD/JPY pair and help limit deeper losses.

Japanese Yen sticks to bearish bias despite intervention warning, weaker risk tone

• Japan’s Finance Minister Satsuki Katayama, in the strongest warning to date, said on Friday that we will take appropriate action as needed against excess volatility and disorderly market moves, including those in the long term. Katayama also signaled chances of currency intervention, providing a modest lift to the Japanese Yen during the Asian session.
• Earlier today, Japan’s Statistics Bureau reported that National Consumer Price Index (CPI) and the core gauge (excluding Fresh Food) rose by 3.0% in October from a year earlier. Further details revealed that core CPI (ex Fresh Food and Energy), which is closely watched by the Bank of Japan, arrived at 3.1% YoY compared to a 3.0% increase in September.
• The data suggests that inflation in Japan remains sticky above the central bank’s 2% target and keeps alive hopes for a near-term interest rate hike. Meanwhile, Bank of Japan Governor Kazuo Ueda said that the JPY weakness is increasingly feeding into import costs and consumer inflation, adding that currency swings have a bigger impact than in the past.
• A Reuters poll showed on Thursday that a slim majority of economists expect the BoJ to raise rates to 0.75% in December, with all forecasters seeing at least that level by the end of Q1 2026. However, the BoJ rate hike uncertainty persists amid Japan’s Prime Minister Sanae Takaichi’s expansionary fiscal policies and her preference for interest rates to stay low.
• In fact, a government panel proposed a supplementary budget of around ¥25 trillion to fund PM Takaichi’s stimulus plan, far exceeding last year’s ¥13.9 trillion extra budget. Moreover, worries about the supply of new government debt led to the recent sharp steepening of Japan’s yield curve and kept borrowing costs elevated near the highest level in decades.
• Meanwhile, the US Bureau of Labor Statistics published the delayed Nonfarm Payrolls report on Thursday, which showed that the economy added 119,000 new jobs in September. The reading surpassed the market expectation of 50,000 and followed the 4,000 decrease (revised from +22,000) in August. The Unemployment Rate edged higher to 4.4% from 4.3%.
• Nevertheless, the data eased market concerns about a softening US labor market and further dampened bets for another interest rate cut by the Federal Reserve in December. The less dovish Fed expectations assists the US Dollar to preserve its strong weekly gains, to the highest level since late May, and should contribute to limiting losses for the USD/JPY pair.

USD/JPY needs to consolidate before the next leg up amid overbought daily RSI

The daily Relative Strength Index (RSI) is flashing slightly overbought conditions and holding back traders from placing fresh bullish bets around the USD/JPY pair. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move.

In the meantime, any corrective slide might now find decent support just below the 157.00 mark ahead of the 156.65-156.60 region, below which the USD/JPY pair could fall towards the 156.00 mark. The latter should act as a pivotal point, which, if broken, should pave the way for deeper losses.

On the flip side, the 158.00 mark could act as an immediate hurdle, above which the USD/JPY pair could climb to the next relevant resistance near mid-158.00s. The momentum could extend further and allow spot prices to aim towards testing the January swing high, around the 159.00 neighborhood.