Yen rebound limited, dollar under pressure with bulls and bears at a stalemate

Policy Intervention Expectations Support the Yen, but Upside Is Limited

During Asian trading hours, the yen gained some breathing room as market expectations of possible intervention by Japanese authorities to prevent excessive currency depreciation increased, leading to cautiousness among short positions. Japanese Finance Minister Satsuki Katayama issued the strongest warning to date last Friday, stating that appropriate measures would be taken as needed to address excessive volatility and disorderly movements, implying clear intervention intentions. Meanwhile, key government official Takuji Aida further indicated on Sunday that Japan could proactively intervene in the foreign exchange market to mitigate the economic impact of yen depreciation.

However, how far the rebound supported by policy intervention can go remains uncertain. Just last week, the Japanese Cabinet approved a massive economic stimulus package totaling 21.3 trillion yen—the largest since the COVID-19 pandemic—further fueling market concerns about Japan’s fiscal health. The government plans to approve a supplementary budget around November 28 to support the implementation of this plan, raising worries about additional government debt issuance, with ultra-long Japanese government bond yields pushed to historic highs.

Central Bank Policy Dilemma and Economic Data Double Pressure

The Bank of Japan faces a dilemma. Third-quarter economic data showed Japan’s GDP contracted for the first time in six quarters, putting pressure on the BOJ to delay interest rate hikes. However, BOJ Governor Kazuo Ueda remains open to the possibility of a rate hike in December and told Parliament that yen depreciation could push up broader price indices. Japan’s inflation rate has remained above the BOJ’s 2% target for over three consecutive years. This policy stance uncertainty acts as a restraining factor on yen appreciation potential.

In contrast, signals from the Federal Reserve are relatively dovish. Fed Governor Christopher Waller said Monday that current employment data indicate the U.S. labor market remains soft enough to support a 25 basis point rate cut at the December policy meeting. New York Fed President John Williams described the current policy as “moderately restrictive” last Friday, implying the Fed still has room to cut rates.

Global Currency Trends Under Dollar Pressure

The revival of expectations for Fed rate cuts has directly pressured the dollar. Market currently prices in about an 80% chance of a rate cut at the conclusion of the two-day December meeting, limiting the recent rebound of the dollar. As a result, the USD/JPY pair has come under pressure; although fundamentals seem tilted toward yen bears, the short-term dollar weakness has suppressed the pair’s upward momentum. Meanwhile, other global currencies are also facing similar revaluations, such as the Philippine peso against the dollar, affected by both dollar weakness and risk sentiment.

Traders are currently more inclined to wait for key U.S. economic data this week, including Producer Price Index (PPI) and retail sales figures, which will be released during North American trading hours. The U.S. economic calendar also includes pending home sales and the Richmond Manufacturing Index, which will significantly influence dollar price movements and provide short-term directional guidance for USD/JPY.

Technical Outlook: 157.00 Becomes a Key Decision Point

From a technical perspective, USD/JPY needs to stay above 157.00 to confirm a new bullish trend. Once confirmed, the pair could move toward the intermediate resistance at 157.45-157.50, then challenge the 157.85-157.90 zone, or retest last week’s ten-month high. Breaking through the 158.00 round figure would signal a new breakout, opening space for further short-term appreciation.

Conversely, if a meaningful correction occurs, initial support may be found around 156.25-156.20. A break below 156.00 could see the pair test the intermediate support at 155.45-155.40, and ultimately fall back toward the psychological level of 155.00. Any further decline is expected to find support near 154.50-154.45, a zone that could serve as a critical turning point and strong short-term bottom.