Japanese Yen surrenders intraday gains; USD/JPY retakes 147.00 amid modest USD uptick
- The Japanese Yen struggles to capitalize on modest Asian session gains against the rebounding USD.
- Hawkish June BoJ meeting Minutes reaffirmed rate hike bets and should limit the JPY downside.
- Rising September Fed rate cut bets could act as a headwind for the USD and cap the USD/JPY pair.
The Japanese Yen (JPY) touched a nearly two-week high against its American counterpart following the release of the June Bank of Japan (BoJ) meeting Minutes, which reaffirmed bets for an imminent interest rate hike by the year-end. Adding to this, an upward revision of Japan's Services PMI turns out to be another factor that provided a modest lift to the JPY during the Asian session on Tuesday. The JPY, however, struggles to attract any follow-through buying amid concerns that domestic political uncertainty and signs of cooling inflation in Japan could complicate the BoJ's policy normalization path.
Adding to this, the upbeat market mood contributes to capping the safe-haven JPY. This, along with the emergence of some US Dollar (USD) buying, assists the USD/JPY pair to rebound around 35-40 pips from the daily trough and climb back above the 147.00 mark in the last hour. Meanwhile, traders are pricing in a greater chance that the Federal Reserve (Fed) will cut interest rates in September. This marks a significant divergence from hawkish BoJ expectations and should act as a tailwind for the lower-yielding JPY. Moreover, rising Fed rate cut bets should cap the USD and the currency pair.
Japanese Yen is underpinned by reviving BoJ rate hike bets; positive risk tone caps further gains
- The Bank of Japan, in the Minutes of the June meeting released this Tuesday, reiterated that it will hike interest rates further if growth and inflation continue to advance in line with its estimates. The minutes also revealed that most BoJ members supported keeping interest rates unchanged for the time being amid heightened uncertainty over US trade tariffs.
- The S&P Global Japan Services PMI rose to 53.6 in July 2025, slightly above the flash estimate of 53.5 and up from 51.7 in the previous month, marking the fourth straight month of expansion and the fastest pace since February. Moreover, the composite PMI rose slightly to 51.6 last month, marking the strongest overall business activity growth since February.
- The ruling Liberal Democratic Party’s loss in the July 20 polls fueled concerns about Japan's fiscal health amid calls from the opposition to boost spending and cut taxes. This suggests that prospects for BoJ rate hikes could be delayed further. Moreover, BoJ Governor Kazuo Ueda last week downplayed inflation risks and signaled continued policy patience.
- Asian equity markets take cues from the overnight sharp rebound on Wall Street and scale higher during the Asian session on Tuesday. This, in turn, undermines demand for traditional safe-haven assets and contributes to capping the Japanese Yen. The US Dollar, on the other hand, gains some positive traction and further offers some support to the USD/JPY pair.
- Any meaningful USD appreciation seems elusive in the wake of the growing acceptance that the Federal Reserve will resume its rate-cutting cycle in September. The bets were lifted by Friday's weaker-than-expected US Nonfarm Payrolls report, which pointed to a cooling labor market. Moreover, concerns about the Fed's independence warrant caution for the USD bulls.
- US President Donald Trump ordered the firing of the head of the Bureau of Labor Statistics hours after the dismal employment details. Moreover, Fed Governor Adriana Kugler resigned from her position on the central bank’s board. This comes amid relentless political pressure on Fed Chair Jerome Powell to lower borrowing costs and should keep a lid on the USD.
- Meanwhile, the CME Group's FedWatch Tool implies over 80% chance of a Fed rate cut in September and around 65 basis points of easing by the end of this year. This keeps US Treasury bond yields depressed and weighs on the USD, which, in turn, might act as a headwind for the USD/JPY pair and warrant some caution before positioning for any meaningful recovery.
- Traders now look forward to the release of the US ISM Services PMI for a fresh impetus later during the North American session. Apart from this, comments from influential FOMC members will play a key role in driving the USD demand. This, along with the broader risk sentiment, should produce short-term trading opportunities around the USD/JPY pair.
USD/JPY shows some resilience below the 50% retracement level; upside potential seems limited
From a technical perspective, spot prices showed some resilience below the 50% retracement level of the rally from the July swing low, and the subsequent move back above the 147.00 mark warrants caution for the USD/JPY bears. Meanwhile, neutral oscillators on the daily chart suggest that any further recovery is more likely to confront an immediate hurdle near the 147.35 area ahead of the 147.75 region, or the 38.2% Fibonacci retracement level and the 148.00 round figure. A sustained strength beyond the latter will suggest that the USD/JPY pair has formed a near-term bottom and shift the bias in favor of bullish traders.
On the flip side, the 50% retracement level, around the 146.85 region, now seems to act as an immediate support. Some follow-through selling below the Asian session low, around the 146.60 area, could make the USD/JPY pair vulnerable to accelerate the fall towards the 146.00 mark. The downward trajectory could extend further and eventually drag spot prices to the 145.85 zone, or the 61.8% Fibo. retracement level.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.