The Japanese Yen's rebound faces a ceiling, and the US dollar support remains intact

Policy Intervention Expectations Support Short-Term Rebound of the Yen, but Fundamental Pressures Remain

During Tuesday’s Asian trading session, the Japanese Yen (JPY) recovered some of its overnight losses, mainly driven by market expectations that the Japanese government may intervene in the foreign exchange market. Japanese Finance Minister Satsuki Katayama issued the strongest policy signal to date, hinting that “appropriate measures” will be taken if the yen depreciates excessively. Subsequently, key government officials, such as Takumi Aida, stated that Japan could actively intervene in the foreign exchange market to help mitigate the economic impact of yen depreciation.

These series of policy statements have made the yen short-seller camp more cautious, but market participants clearly recognize that any rebound momentum will be constrained by multiple fundamental factors. Last week, Japan’s Cabinet approved the largest economic stimulus package since COVID-19 pandemic began, totaling 21.3 trillion yen, which directly increased government bond supply pressure, pushing the ultra-long Japanese government bond yields to record highs. Meanwhile, Japan’s economy contracted for the first time in six quarters in Q3, which is expected to force the Bank of Japan (BoJ) to delay its policy tightening steps.

The depreciation pressure on the yen has also caused spillover effects on emerging Asian currencies such as the Philippine peso against the US dollar, putting regional currencies under pressure.

Fed Rate Cut Bets Strengthen, Dollar Gains Hidden Support

Although the US dollar (USD) has recently been in a consolidation phase overall, the wavering expectations of rate cuts are subtly affecting the forex market. Federal Reserve Governor Christopher Waller stated on Monday that weak employment data are sufficient to support a 25 basis point rate cut in December. New York Fed President John Williams also described current policy as “moderately restrictive,” implying room for further rate cuts.

Market quickly digested these signals, with pricing for a December 10 rate cut reaching as high as 80%. While this seems unfavorable for the dollar, on the fundamental side, Bank of Japan Governor Ueda Haruhiko remains open to a rate hike in December and emphasized the risk of yen depreciation pushing up prices—Japan’s inflation has exceeded the BoJ’s 2% target for over three consecutive years. This policy divergence provides structural support for USD/JPY.

Technical Outlook: USD/JPY Likely to Test Multi-Month High Above 157.00

From a technical perspective, USD/JPY is approaching the confirmation level at 157.00. Once this key level is established, the next upside target is the intermediate resistance zone at 157.45-157.50, followed by the region of 157.85-157.90—last week’s ten-month high. A successful break above 158.00 will open a new appreciation phase.

Conversely, any technical correction is expected to find initial support around 156.25-156.20. If this level is broken, the 156.00 round figure will serve as the second line of defense. Deeper support levels are at 155.45-155.40 and the psychological level of 155.00, with the 154.50-154.45 zone acting as medium-term strong support, potentially attracting long positions.

Traders should currently wait for the US Producer Price Index (PPI) and Retail Sales data to be released later in North America. On Tuesday, pending home sales and the Richmond Manufacturing Index will also be published, which will directly influence the dollar’s price movement and provide guidance for short-term trading. In related currencies such as the Philippine peso against the US dollar, changes in risk sentiment in Asia are also worth monitoring.