USD/JPY Surges Toward 154.00 as Powell’s Hawkish Tone Reignites Dollar Strength and Japan Faces Intervention Pressure
The USD/JPY pair extended its aggressive climb into November’s first session, closing Friday near 154.00, its highest level since March, as U.S. yields surged following Jerome Powell’s reaffirmation that rate cuts remain “far from guaranteed.” The dollar’s rally was intensified by the ongoing U.S. government shutdown, which delayed crucial labor market data, forcing traders to rely on private indicators such as ADP employment and ISM services PMI. These events have tightened volatility, pushing the U.S. 10-year Treasury yield back toward 4.75%, while the 2-year yield steadied near 4.98%, sustaining dollar momentum against the yen.
U.S. Yield Rebound Anchors USD/JPY Bullish Trajectory
Correlation between USD/JPY and U.S. bond yields has strengthened sharply, with a rolling five-day coefficient peaking at 0.93—one of the highest readings of the year—demonstrating how the pair’s movement has decoupled from equity risk sentiment and now mirrors Treasury performance almost tick-for-tick. The Nasdaq futures and VIX correlation have weakened, indicating that risk appetite is no longer driving yen weakness; instead, the yield advantage is dominating.
Following Powell’s FOMC remarks, traders reduced the odds of a December rate cut to below 25%, compared to nearly 60% two weeks prior. The Federal Reserve’s quantitative tightening is expected to slow by early December, when maturities from the Fed’s holdings will be reinvested into short-term Treasuries, further anchoring front-end yields and sustaining pressure on the yen.
The Treasury Department’s latest quarterly refunding projection, estimating $590 billion in Q4 borrowing, compounded concerns over debt supply, reinforcing yield elevation. With U.S. debt issuance focused on short-term maturities, yield spreads between 2-year and 10-year Treasuries narrowed to -24 basis points, further strengthening dollar appeal.
Japan’s Officials Step Up Verbal Defense as Yen Nears Intervention Zone
As USD/JPY trades above the 152.00 psychological threshold that triggered intervention in 2022, Tokyo’s financial authorities are visibly uneasy. Finance Minister Satsuki Katayama issued a warning that the yen’s “very one-sided and rapid moves” are being monitored with “a high sense of urgency.” This explicit language mirrors the rhetoric used just before Japan’s prior intervention when the pair was near 151.95, suggesting that policymakers are now on alert.
Still, Japan’s 10-year JGB yield, capped by the Bank of Japan’s 1.0% upper limit, leaves the central bank with little flexibility to counteract U.S. rate differentials. The widening yield gap—now exceeding 380 basis points between U.S. 10-year Treasuries and Japanese JGBs—continues to suppress yen demand.
The Tokyo CPI print for October, rising 2.9% year-over-year, adds pressure on the BOJ to consider policy normalization by December. Market consensus is shifting toward a potential rate hike or YCC adjustment, particularly if upcoming wage data (due November 7) confirms robust growth.
Technical Analysis: Bullish Momentum Faces RSI Divergence
Technically, USD/JPY remains in a well-defined uptrend, holding firmly above both its 200-day moving average (148.60) and 50-day average (150.40). The breakout above 153.28 last week established a new structural base, now acting as key support. Resistance sits at 154.45, 154.80, 156.50, and 158.88, marking potential upside checkpoints should the pair sustain momentum.
However, the RSI (14) shows mild bearish divergence—prices are making new highs, while momentum is flattening around 68. This suggests potential exhaustion near the 154.00–154.80 range. The MACD, nonetheless, maintains a bullish crossover signal, confirming sustained buying bias. A short-term retracement toward 153.00–153.20 cannot be ruled out, where the uptrend line from October 2 provides a secondary accumulation zone for dip buyers.
Market Intervention Risk and Trading Scenarios
The Ministry of Finance’s prior intervention level around 152.00 remains a key memory in market psychology. With the pair already above that zone, speculative traders are cautious of a sudden liquidity-driven plunge if Tokyo steps in. Option traders are now pricing higher volatility premiums, with one-week implied volatility at 11.2%, up from 8.9% earlier in the week.
Institutional desks in Tokyo have reportedly begun hedging with put spreads targeting 152.00–151.50, while momentum funds maintain long exposure up to 155.50. The divergence in positioning highlights rising two-way risk: intervention could erase weeks of gains, while inaction might embolden bulls to test 156.00.
For strategic traders, structured positions such as buying 153.00 puts or long straddles at 154.00 offer controlled exposure to either a sharp reversal or breakout. However, speculative longs remain the majority, with CFTC data showing net long USD/JPY positions up 9% week-over-week, the highest since May 2024.
Domestic Indicators: Wages, Spending, and Inflation Set the Tone for BOJ’s December Move
Japanese economic releases next week will shape the tone ahead of the December BOJ meeting. Wage growth data and household spending remain the two critical components the bank watches to justify any shift away from ultra-loose policy. A wage increase above 2.5% YoY would likely strengthen expectations for tightening, potentially pushing USD/JPY toward 151.50.
Household spending, meanwhile, has shown contraction for six straight months, but preliminary surveys hint at modest recovery in October, supported by stable energy costs and government subsidies. If this rebound materializes, it could reinforce domestic demand resilience, partially offsetting yen weakness.
Broader Dollar Strength: Powell’s Hawkish Signal Extends Rally Across Majors
Beyond the yen, Powell’s post-FOMC tone has reignited a broad dollar rally. The U.S. Dollar Index (DXY) closed Friday near 99.80, up 0.6% on the week, marking its second consecutive weekly gain. The EUR/USD slipped to 1.1550, and GBP/USD fell below 1.2500, amplifying USD dominance. With the market now pricing only three 25bps rate cuts in 2026, the yield narrative continues to favor dollar bulls across the board.
Meanwhile, U.S. labor indicators, such as the ADP report due Wednesday, will provide short-term catalysts for yield movements. A strong reading above 160K jobs could lift yields further, sending USD/JPY toward 155.00. Conversely, any sign of wage stagnation or weak ISM service data could prompt consolidation back to 152.80.
Technical Outlook and Market Sentiment
Momentum traders remain firmly in control. As long as the pair holds above 153.20, the path of least resistance stays upward. Near-term pullbacks are seen as buying opportunities, with institutions targeting 156.00–158.50 before potential year-end retracement.
Momentum oscillators confirm upward strength despite slight divergences, and open interest data shows increasing participation in long positions. Retail sentiment, however, leans heavily short, suggesting the risk of continued squeeze higher if intervention fails to materialize.
Verdict: Buy — USD/JPY Holds Bullish Bias Toward 155.50 Amid Yield Support and BOJ Caution
With Powell’s hawkish guidance reinforcing yield dominance, and Japanese policymakers still constrained by YCC limits, USD/JPY maintains a strong bullish structure into November. While short-term corrections are likely around 154.00, the broader bias remains upward toward 155.50–156.00, as long as 153.00 support holds. Intervention risk lingers but remains untriggered—making Buy the tactical stance while managing exposure through defined stops below 152.50
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