Expectations of US-Japan interest rate differentials narrowing sharply in favor of the yen faded in recent sessions, lifting USD/JPY. Fed Chair Powell downplayed the chances of a rate cut in December, citing concerns over tariff-fueled inflation, boosting demand for the US dollar. Meanwhile, the Bank of Japan signaled a potential hold on further rate hikes to assess the effect of tariffs on wages, inflation, and the broader economy.
The less hawkish BoJ and less dovish Fed continue to cushion the downside for USD/JPY, increasing the risk of yen intervention.
Yen intervention threats may intensify as USD/JPY moves toward 155. However, 160 could be the flash point, given the last intervention around that level in mid-2024.
Japanese Prime Minister Sanae Takaichi added to the market uncertainty, stating that price stability, coupled with wage gains, had yet to be achieved. Crucially, Prime Minister Takaichi’s comments reinforced the BoJ’s softer inflation outlook through H1 2026. Notably, Takaichi’s stance could pressure the BoJ to stand pat in December, potentially weakening the yen.
While the medium-term outlook remains bearish, uncertainty about the timing of a Fed rate cut could limit the near-term downside, barring a market event. Meanwhile, yen intervention threats would likely cap the USD/JPY pair’s upside at 155.
