Monetary Policy Divergence Continues to Support USD/JPY

The US dollar against the Japanese yen continues to trade near its highest levels in decades, supported by the widening gap between monetary policy in the United States and Japan. While the Federal Reserve continues to maintain a relatively hawkish stance amid persistent inflationary pressures, the Bank of Japan is moving cautiously toward policy tightening, keeping pressure on the yen and supporting the strength of the dollar.

Japanese Intervention Risks Return to the Spotlight

At the same time, the risk of Japanese intervention has returned to focus after Japan’s Finance Minister Atsushi Mimura referred to the possibility of intervention in the foreign exchange market for the first time since early June, stressing that authorities are closely monitoring currency movements and will take the necessary measures if volatility becomes excessive.

These remarks helped limit the pace of yen weakness, but investors are now watching whether Japanese authorities will move from verbal warnings to actual market intervention. If these warnings continue without action, their credibility may gradually fade, reducing their impact on the yen’s movements in the future and shifting market focus back to fundamental factors, mainly the interest rate differential between the United States and Japan.

Key Catalysts for the Next USD/JPY Move

Looking ahead, the pair’s direction will remain highly linked to U.S. economic data, especially labor market and inflation figures, which will influence expectations for U.S. interest rates. Continued strength in the U.S. economy could support the dollar and push the pair toward new highs, while weaker data or actual Japanese intervention in the currency market could trigger a downward correction, especially if expectations for higher U.S. interest rates for longer begin to decline. 

Technical Outlook: Bullish Trend Remains Intact

Figure: USDJPY, Time frame: H4, Trading view.Figure: USDJPY, Time frame: H4, Trading view.

From a technical perspective, USD/JPY is trading in a broader uptrend, forming higher highs. Looking at the 21-period exponential moving average (red line), the 50-period exponential moving average (green line), the 100-period simple moving average (yellow line), and the 200-period simple moving average (blue line), the structure continues to reflect bullish momentum for the U.S. dollar and weakness in the Japanese yen. This is visible in the short term as the 21-period EMA trades above the 50-period EMA, and in the longer term as the 100-period SMA remains above the 200-period SMA.

Key Technical Levels to Watch

One of the main signs traders should monitor in the short to medium term is any intervention by Japanese authorities in the foreign exchange market.

In addition, a decline in price and a bearish crossover, where the 21-period EMA breaks below the 50-period EMA, could signal weakening momentum. A shift in the bullish structure on the four-hour timeframe may also occur if the price falls below the 161.530 level and forms a new lower low.