The USD/JPY pair edged lower in Thursday's Asian session, but the slip had little force behind it and found support above the 161.50 level. As of the latest close the pair sits near 161.74, just a step away from a 40-year high. Live readings put its RSI(14) at 74, which means it has pushed into overbought territory. Traders are now fixed on the US Personal Consumption Expenditures (PCE) Price Index for a fresh sense of direction.
That inflation print will shape the Federal Reserve's policy path, and that in turn will steer the US Dollar and decide the next big move for USD/JPY.
Why the dollar eased off
A recent drop in Crude Oil prices has cooled inflation worries, prompting traders to trim their bets on Fed rate increases. As a result, the dollar slipped from its highest level since May 2025, a peak it touched on Wednesday. That softness in the greenback is acting as a brake on any USD/JPY rally.
Intervention fears prop up the Yen
On top of that, speculation about a joint US-Japan move in the currency market has intensified, giving the Japanese Yen some support and further capping the pair's upside. Japan's Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent agreed to take steps on currencies if necessary. Japan's Chief Cabinet Secretary Minoru Kihara also said on Tuesday that he would take appropriate action against foreign exchange moves if needed. A hawkish Bank of Japan adds to the comfort for Yen bulls.
The Bank of Japan's hawkish signal
The Summary of Opinions from the Bank of Japan's June meeting showed policymakers debating mounting inflation risks, with some pushing for faster rate increases to lift borrowing costs toward levels seen as neutral for the economy. Board member Naoki Tamura said earlier today that it is important to move the policy rate closer to neutral, which is about 2%. That is still below the Fed's 3.5% to 3.75% target, and this gap keeps the Yen carry trade alive and helps limit the downside for USD/JPY.
What drives the Yen
The Japanese Yen is one of the world's most traded currencies. Its value is broadly set by how the Japanese economy performs, but more specifically by Bank of Japan policy, the gap between Japanese and US bond yields, and the risk mood among traders, among other things.
Currency control is one of the Bank of Japan's responsibilities, so its moves matter a great deal for the Yen. The central bank has at times stepped directly into currency markets, usually to push the Yen lower, though it holds back from doing so often because of the political sensitivities of its main trading partners. Its ultra-loose monetary policy between 2013 and 2024 weakened the Yen against its main peers as the gap between the Bank of Japan and other major central banks widened. More recently, the gradual unwinding of that ultra-loose stance has lent the Yen some support.
The bond yield gap
Over the past decade, the Bank of Japan's commitment to ultra-loose policy widened the divergence with other central banks, particularly the US Federal Reserve. That stretched the gap between 10-year US and Japanese bonds, favoring the dollar over the Yen. The Bank of Japan's 2024 decision to slowly abandon the ultra-loose approach, paired with rate cuts at other major central banks, is now narrowing that gap.
The Yen is often treated as a safe-haven asset. In times of market stress, investors tend to park money in the Japanese currency because it is seen as reliable and stable. Turbulent stretches tend to strengthen the Yen against currencies viewed as riskier.
How other markets are faring
In Thursday's Asian hours, GBP/USD clawed back some ground to near 1.3175. Even so, its upside may stay limited amid UK political instability and rising expectations of US rate hikes this year.
EUR/USD slipped to around 1.1355, with the Euro weakening to its lowest level since June 2025 against the dollar as traders raise their bets on US rate hikes later this year.
Gold drifted back toward seven-month lows near $3,950 early Thursday. The dollar is in a bullish consolidation amid Fed rate hike bets and conflicting US-Iran messages. With RSI flirting with oversold territory, gold could fall further, and eyes are on an impending Death Cross.
The broader crypto market remains under heavy selling pressure, with Bitcoin back at $60,000 for the third time this year. On-chain data shows selling from large-wallet investors, often called whales, while total liquidations hit nearly $1 billion in 24 hours.
In the US, the rate did not budge. The FOMC held its benchmark at 3.50% to 3.75% for a fourth straight meeting, exactly as priced in. It was Kevin Warsh's first meeting in charge of the Fed, and the new chair used his first press conference to take apart the machinery the market has leaned on for a decade.
