USD/JPY Edges Back Towards Intervention Levels

USD/JPY is back within touching distance of 160, the level that dragged Japan and the US into the market this summer.

The pair rose as high as 159.95 on Thursday, its strongest level since early September, as hot US inflation data fuelled bets on another Fed rate hike. It had been trading around 159.70 heading into the European session, with speculators testing how far Tokyo and Washington will let the yen slide before stepping in again.

Latest Market Moves

• USD/JPY gained 0.7% on Wednesday to close at 159.78, after a 0.5% rise on Tuesday following the US inflation release.

• The US Dollar Index hit 103.08 on Thursday, up from a low of 101.10 on 4 November.

• The yen was weak across the board, with EUR/JPY near 177.10 and GBP/JPY close to 211.90 in early Thursday trade.

• The Nikkei 225 closed down 0.7% at 60,819 on Thursday, having reached 61,788 earlier in the session.

Hot US Inflation Puts a Fed Hike on the Table

The dollar's latest leg higher is being driven by the Fed.

US consumer prices rose 0.4% in October, above forecasts of 0.3%, while core prices rose 0.3% for a third straight month. Speaking in London on Tuesday before the data, Fed Governor Christopher Waller said he was leaning towards a 25 basis point hike in December, but that a 50bp move "should be considered" if core inflation kept running at about 0.3% a month or higher.

"Hiking only 25 basis points would put our credibility at risk," he said. The Fed raised rates in September, its first hike in three years, before holding at 3.75%-4.00% on 28 October, with two policymakers voting for a hike. Its next decision is due on 9 December.

The BoJ Held Too, but December Is Live

Japan's central bank also sat on its hands last time, and that is part of the yen's problem.

The Bank of Japan kept its policy rate at 1.25% on 30 October, having raised it to a 31-year high in September. The vote was 8-1, with board member Hajime Takata pushing for a hike to 1.5% on the grounds that underlying inflation has reached the 2% target.

The case for a move is building. Japanese wholesale prices rose 7.1% year on year in October, data showed on Thursday, beating forecasts of 6.5%, and the BoJ's last meeting of the year falls on 17-18 December, eight days after the Fed.

Speculators Test Tokyo and Washington

The bigger question is how serious the authorities are about defending 160.

Japan and the US Treasury bought yen on 31 July, with the pair approaching 164, knocking it from 163.74 to as low as 157.96 that day. In September, Treasury Secretary Scott Bessent warned yen bears: "I am the house now... and you can bet against me if you want."

But in late August Bessent also called yen moves around 160 "pretty well contained" and not disorderly, and that is the line the market now seems to be probing. On Thursday, Japan's top currency diplomat Atsushi Mimura said recent moves had been "excessively rapid" and that it was "still too early to forget what happened this summer."

USD/JPY Technical View

The weekly chart shows USD/JPY breaking out of the downtrend that followed the summer intervention.

The trendline runs from the 160.39 high on 1 September through a series of lower weekly highs into early November, and this week's candle has pushed through it. That puts the September high back in focus as first resistance, with a weekly close above there opening the way to July's year-to-date peak of 163.99.

On the downside, October's low of 156.07 is the first support, followed by September's 152.89 low. The weekly RSI, at around 54, is a long way from stretched.

The longer-term chart is a reminder of how these episodes have ended before. USD/JPY fell about 16% from its October 2022 peak of 151.94 and around 14% from its July 2024 high of 161.95, with the 140 area acting as a floor in late 2023, September 2024 and April 2025.

Source: SpreadEx | USD/JPY, Weekly Chart