Insights 
VT 
Key Points:
- A positive risk tone continues to weigh on the safe-haven yen, although intervention fears limit losses.
- Diverging BoJ–Fed policy outlooks also lend support to the low-yielding yen and weigh on USDJPY.
Investors remain uncertain about the pace of policy tightening by the Bank of Japan, amid expectations that energy subsidies, stable rice prices and low petroleum costs will keep inflation subdued into 2026. This, together with fiscal concerns stemming from Prime Minister Sanae Takaichi’s large-scale spending plans to stimulate growth, has failed to help the Japanese yen build on Monday’s rebound from a two-week low against the US dollar.
The hawkish outlook lifted the rate-sensitive two-year Japanese government bond yield to its highest level since 1996, while the benchmark 10-year JGB yield climbed to its highest level since 1999 on Monday. The resulting narrowing of the rate differential between Japan and other major economies could help limit any meaningful downside to the yen, amid speculation over possible government intervention.
Bank of Japan Governor Kazuo Ueda said on Monday that the central bank will continue raising interest rates if economic and price developments remain in line with its forecasts. He added that adjusting the degree of monetary support will help the economy achieve sustainable growth, and that wages and prices are highly likely to rise moderately in tandem. This keeps the door open for further BoJ policy normalisation.
Technical Analysis
USDJPY’s price action has slowed, with the pair trading in a tight range between 155.650 and 157.000, as shown in the chart below. The moving averages are also clustered closely together, signalling the absence of a clear trend. For a more decisive directional move, a widening gap between the EMAs would be required, indicating stronger momentum in the market.
The MACD shows the signal line hovering close to zero level, with some bearish bars appearing in negative territory. However, this setup is not strong enough to justify short positions. It is preferable to see at least two indicators aligned in the same direction to provide stronger confirmation.
Cautious Outlook as Non Farm Payroll Awaits
Traders are keenly awaiting Friday’s release of the US Nonfarm Payrolls report, which, together with other key US macroeconomic data due this week, will be scrutinised for signals on the Federal Reserve’s rate-cut trajectory. This is likely to play a crucial role in shaping the US dollar’s direction and providing fresh impetus for USDJPY. Nevertheless, the broader fundamental backdrop remains tilted in favour of the yen bulls.
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