The USD/JPY pair hovered around ¥156.70 following comments from Japan’s Finance Minister Satsuki Katayama, who remarked that the recent volatility of the yen “is not moving based on fundamentals.” During an appearance on Fuji TV, Katayama highlighted the importance of stability that mirrors economic reality, indicating Tokyo’s growing unease regarding the depreciation of the yen. The statement came after a significant monthly decline that wiped out previous gains, placing the yen close to its lowest point since the summer, as market participants factored in ongoing policy differences between the Federal Reserve and the Bank of Japan. The USD/JPY rally persists, reflecting the ongoing monetary divergence between the U.S. and Japan. The Federal Reserve’s benchmark rate, currently exceeding 5%, stands in stark contrast to the BoJ’s near-zero policy, presenting a significant carry-trade opportunity, prompting global funds to take advantage of low yen borrowing costs and reinvest in U.S. assets that offer higher yields, contributing over 7 yen to the exchange rate just in November.
Traders indicate consistent capital inflows into U.S. Treasuries, as Japanese investors adopt a less aggressive hedging strategy, facilitating an uninterrupted rise of the dollar. Officials in Tokyo have expressed heightened concerns as USD/JPY approaches the significant ¥157.00 level, and Katayama’s comments—reflecting previous cautions from her predecessors—indicate that a unified approach to currency defense may be implemented should volatility increase significantly. Japan’s Ministry of Finance last intervened when the yen fell past ¥160.20, injecting billions of dollars to stabilize the currency, resulting in a short-lived appreciation of almost 3% before speculative buying swiftly reemerged as market participants viewed the action as transient. This historical context has led traders to adopt a cautious stance rather than fear, anticipating verbal interventions prior to any decisive measures. The depreciation of the yen is exacerbating domestic inflation, especially in imported energy and food, with Japan’s consumer price index persisting at approximately 3%, exceeding the BoJ’s 2% target, while policymakers remain reluctant to implement decisive tightening measures.
Meanwhile, Japan’s latest ¥21.3 trillion fiscal stimulus package — roughly US$135 billion — has heightened expectations of increased government borrowing, leading to a decline in Japanese bond prices and higher yields, paradoxically causing further weakening of the yen as investors perceive debt expansion as inconsistent with monetary tightening. From a technical perspective, USD/JPY exhibits robust bullish momentum, positioned above all significant moving averages, with support at ¥155.20 and crucial resistance at ¥157.30, and potential upper extension towards ¥160.00. The RSI on the daily chart, currently at 65, indicates robust buying activity without signs of exhaustion; a break above ¥157 may push the pair towards ¥159–¥160, increasing intervention risks, while a drop below ¥155 may trigger a corrective pullback to ¥153.70 aligned with the 20-day EMA. Speculative traders continue to hold long positions in USD/JPY, supported by U.S. yield premiums and consistent inflows into U.S. equities, with leveraged funds holding one of the largest net-long exposures since early 2022. Currently, verbal warnings hold minimal influence as investors view them as posturing, though many expect volatility to rise significantly if the pair trades above ¥157.50.
Within the Bank of Japan, decision-makers are navigating a complex balancing act, as inflation remains above target while real wage growth lags and restricts consumption. Members of the BoJ, including Asahi Noguchi, advocate a gradual normalization approach, though the board exercises caution to avoid disrupting the fragile recovery, and the central bank’s hesitance to implement significant rate increases remains a primary driver of yen depreciation. With the BoJ maintaining ultra-loose policy and the Fed continuing restrictive measures, USD/JPY is likely to sustain levels above ¥155, strengthening the long-term bullish outlook for the dollar. The robustness of the U.S. economy—GDP growth above 2% and jobless claims at multi-year lows—supports dollar strength, while Japan’s 0.5% quarter-on-quarter GDP contraction signals declining domestic momentum, reinforcing the exchange imbalance driven by conflicting fundamentals. At ¥156.70, USD/JPY stands at a pivotal point; policy divergence, higher U.S. yields, and Japan’s fiscal expansion support ongoing dollar strength, and although Tokyo’s verbal defense may slow momentum, structural forces persist unless rate adjustments or coordinated intervention occur, with the pair biased upward toward ¥158–¥160 into early December.