Japanese Yen Retreats Amid Rate Speculations

The Japanese Yen (JPY) took a step back from its six-month high on Tuesday as the trend of closing carry trades started to slow down. Nonetheless, the JPY managed to gain ground against the US Dollar (USD) as there are growing expectations for the Bank of Japan (BoJ) to possibly tighten its monetary policies further.

Recently, the Bank of Japan made a move by raising its short-term interest rate target by 15 basis points, bringing it to a range of 0.15%-0.25%. In addition, the central bank revealed a plan to reduce its monthly purchases of Japanese government bonds (JGBs) to ¥3 trillion, which is set to begin in the first quarter of 2026.

However, the upside for the JPY might be limited as the US Dollar faces challenges. This is mainly due to increasing expectations that the US Federal Reserve (Fed) may cut interest rates by 50 basis points in September. According to the CME FedWatch tool, there’s now a 74.5% chance of this cut happening at the upcoming meeting, a significant jump from just 11.4% one week ago.

As of Tuesday, the USD/JPY currency pair was trading around 145.20. Analysis of the daily chart indicates that this pair has paused its downward trend that started on July 30. The 14-day Relative Strength Index (RSI) is showing numbers below 30, suggesting the pair may be oversold and could see a bounce back soon.

The USD/JPY pair may be looking to test the support level at 140.25, a point that was previously hit in December.

On the flip side, if the USD/JPY pair climbs, it might face resistance around the nine-day Exponential Moving Average (EMA) at about 149.22. A breakthrough above this level could ease the bearish sentiment and allow the pair to test what was formerly a support level, now resistance, at 154.50, followed by the 50-day EMA at 155.58.

In related trading reports, the Japanese Yen showed the weakest performance against the Australian Dollar today.