Japanese Yen approaches September lows as US Dollar surges on inflation shock

• USD/JPY rises 0.39% to around 158.95, approaching its September peak as the US Dollar strengthens.
• US inflation accelerated to 3.7% in September, boosting expectations of further interest rate hikes.
• Japanese Yen faces pressure from a cautious Bank of Japan while markets assess intervention risks.

USD/JPY extends its advance on Wednesday, gaining 0.36% on the day to trade around 158.90 at the time of writing. The pair approaches the psychological 159.00 level, near its September peak, as stronger-than-expected United States (US) inflation data boosts the US Dollar (USD) and reinforces expectations of further monetary tightening by the Federal Reserve (Fed).

The latest US Consumer Price Index (CPI), released by the Bureau of Labor Statistics (BLS) on Wednesday, showed annual inflation accelerating to 3.7% in September, up from 3.4% in August and above market expectations. Core CPI, which excludes volatile food and energy prices, also rose to 2.6% YoY, compared with 2.4% previously.

On a monthly basis, headline and core inflation increase by 0.6% and 0.3%, respectively, highlighting persistent inflationary pressures that could encourage the Fed to maintain a restrictive monetary policy stance or raise interest rates further.

Following the release, markets increased the chance of a 25-basis-point (bps) Fed rate hike in October to 53%, up from 22% the previous day. Investors also assign a 50% chance to another 25-bps increase in December, compared to 18% a day earlier.

The repricing of interest rate expectations triggers a sharp increase in US Treasury yields, providing additional support to the Greenback. The benchmark 10-year US Treasury yield climbed to near 5.33%, compared with around 5.20% before the inflation report. Higher US yields widen the interest rate differential with Japan, making the US Dollar more attractive relative to the Japanese Yen (JPY).

The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, advances 0.55% to around 102.75, its highest level since April 2025, reflecting broad-based demand for the US currency.

Meanwhile, the Japanese Yen remains under pressure following weaker-than-expected Japanese Producer Price Index (PPI) figures on Monday and cautious comments from Bank of Japan (BoJ) officials, which reinforce expectations that the central bank will leave interest rates unchanged at its October meeting.

BoJ Governor Kazuo Ueda reiterated the importance of keeping inflation anchored near the 2% target but provided no clear indication of when the central bank could resume raising interest rates. This cautious stance contrasts with growing expectations of further Fed tightening, reinforcing the monetary policy divergence between the United States and Japan.

However, the continued appreciation of USD/JPY towards 159.00 could revive concerns about a potential intervention by Japanese authorities to support the Japanese Yen. With the pair approaching its September peak, investors may become increasingly sensitive to warnings from Japanese officials about excessive currency volatility, potentially limiting further gains in USD/JPY.

USD/JPY technical analysis

In the one-hour chart, USD/JPY trades at 158.95, extending its advance above the 100-period simple moving average (SMA) at 158.31 and the 200-period SMA at 158.16, which both underpin a bullish near-term bias. Price also holds over the recent horizontal floor at 158.45, while the Relative Strength Index (14) climbs into overbought territory near 71.9, hinting that upside momentum is strong but increasingly stretched.

On the topside, immediate resistance emerges at 159.00, where the latest horizontal barrier caps the current run-up. On the downside, initial support is seen at 158.45, ahead of the clustered underlying demand from the 100-period SMA at 158.31 and the 200-period SMA at 158.16; a deeper pullback would expose subsequent supports at 157.85, 157.00 and 156.50.

(The technical analysis of this story was written with the help of an AI tool. Know more.)