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For the second consecutive day, the Japanese yen has strengthened against the weakening US dollar. However, the likelihood of a significant weakening of the yen seems unlikely amidst the overall decline of the US dollar.
The tightening intervention policy proposed by Japan's Finance Minister, Satsuki Katayama, continues to support the Japanese currency.
Additionally, rising geopolitical tensions could further enhance the Japanese yen's status as a safe-haven asset, limiting the recovery of the USD/JPY pair. At the same time, the Bank of Japan has left the door open to tightening monetary policy. This development sharply contrasts with expectations of Federal Reserve interest rate cuts in 2026, keeping the dollar close to a two-week low and thereby creating conditions for the yen to appreciate.
Katayama emphasized that the country's authorities are ready to take decisive action against excessive speculative movements that are not supported by economic foundations.
This stance followed a warning from Atsushi Mimura, head of currency operations in Japan, on Monday, calling for action amid the yen's sharp decline.
Meanwhile, geopolitical risks continue to rise: the escalation of the conflict between the US and Venezuela, the protracted conflict in Ukraine, and renewed tensions between Israel and Iran—all of these intensify pressure on global markets. These events have escalated demand for safe-haven assets, favoring a stronger Japanese yen, which has risen against the dollar for two consecutive days.
The yield on 10-year Japanese government bonds has reached a 26-year high amid expectations of further BOJ interest rate hikes, following the central bank's rate hike last Friday to the highest level in 30 years.
In contrast, market participants are pricing in the likelihood of two more Fed rate cuts in 2026, putting pressure on the dollar and bolstering sentiment toward the Japanese yen.
US Treasury Secretary Scott Bessent suggests that the new Fed chair may abandon the current restructuring strategy and change the approach to inflation policy and communication, which would increase uncertainty and add pressure on the dollar.
From a technical perspective, the price drop below the round levels of 156.00 and 157.70 favored the bears; however, prices stayed above the 100 and 200 SMA on the 4-hour chart, preventing the bears from taking control.
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