Japanese Yen Strengthens as BoJ Hike Bets and Geopolitical Risks Pressure USD/JPY

The Japanese Yen (JPY) gained traction on Monday, reversing its intraday dip against the US Dollar (USD) as safe-haven demand and growing Bank of Japan (BoJ) rate hike expectations limited downside pressure. The USD/JPY pair hovered in the mid-147.00s, unable to sustain early gains amid shifting global and domestic factors.

Safe-Haven Flows Boost Yen on Rising Geopolitical Risks

Renewed geopolitical tensions have underpinned safe-haven demand for the Yen. Russia launched large-scale strikes involving hundreds of drones and missiles against Ukraine, while escalating conflict in Gaza also weighed on market sentiment. The resulting risk aversion encouraged investors to seek shelter in the Japanese Yen.

Diverging Policy Outlooks: BoJ Hawkish, Fed Dovish

Markets increasingly expect the BoJ to tighten policy later in 2025, supported by stronger inflation data and higher capital expenditure. Japan’s Ministry of Finance reported that Q2 capital spending grew by 7.6% year-on-year, reinforcing expectations of economic resilience.

In contrast, traders now anticipate the Federal Reserve to cut interest rates twice before year-end, reflecting labor market concerns. This divergence in policy stance continues to favor the Yen over the Dollar.

Key Data Highlights

Japan PMI (August): Finalized at 49.7, signaling a softer contraction in the manufacturing sector.
Capital Expenditure: Jumped 7.6% YoY in Q2, compared to 6.4% in Q1.
US Outlook: Traders await critical economic data releases later this week, including labor reports and ISM surveys, which could shape the Fed’s September decision.

USD/JPY Technical Outlook

The USD/JPY remains locked in a four-week trading band between 146.70 (support) and 148.00 (resistance).

Support Levels:
- 146.70 (immediate)
- 146.20 (August low)
- 146.00 (psychological level)
Resistance Levels:
- 147.50 (short-term cap)
- 148.75–148.80 (swing high)
- 200-day SMA near 148.80

A decisive break below 146.70 could trigger deeper losses, while a move above 148.00 may open the door to a bullish push toward 150.00.

Outlook

With Fed independence under scrutiny and BoJ tightening bets intensifying, the balance of risks appears tilted in favor of further Yen appreciation. Market participants will watch closely for upcoming US macroeconomic releases and any new geopolitical developments that could drive safe-haven flows.

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Yasher Rizwan