USD/JPY has returned to an important area near 160, the same region where Japan and the US previously stepped in to support the yen. With another Bank of Japan rate increase possible and price rejecting a key chart area, we continue to favour a move lower.
USDJPY Daily Chart
USD/JPY reached almost 164 in July, its highest level in around 40 years. It then fell sharply after Japan and the United States entered the market to support the yen.
Price has since recovered toward 159, but the rebound is slowing near the same area where sellers previously took control. Our bias remains bearish while USD/JPY stays below 160.10.
🖋️ Why Intervention Matters
In late July, Japan and the US carried out their first joint yen-buying operation since 1998. This is called currency intervention. It means governments enter the market and buy or sell a currency to influence its value. In this case, they bought yen to make it stronger and stop USD/JPY from rising too quickly.
Market estimates suggest Japan used close to $59 billion during the first stage before the US joined. Both countries have also said they are prepared to act again. This makes the area around 160 dangerous for USD/JPY buyers. Intervention cannot fix the yen's long-term problems by itself, but it can cause a sudden and powerful fall.
💹 The BOJ Could Raise Rates Again
The Bank of Japan (BOJ) raised its main interest rate to 1.00% in June; its highest since 1995. The BOJ kept rates unchanged on July 31, but warned that inflation could rise clearly above its 2% target. One member voted to raise rates immediately to 1.25%.
The next meeting is on September 17–18, and another increase is possible. Higher interest rates can support a currency because investors may earn a better return from holding assets in that country.
A September hike would show that the BOJ is becoming more serious about inflation and yen weakness. It would also support the earlier intervention with a real change in monetary policy.
⚠️ The Main Risks
The first risk is Japan's expansionary government policy. Prime Minister Sanae Takaichi supports higher spending and tax cuts. Japan has a record budget of around ¥122 trillion and is planning a temporary reduction in the consumption tax on food.
These measures may support households, but they also raise concerns about debt and inflation. This could reduce the positive effect of BOJ rate increases and keep pressure on the yen.
The second risk is the interest-rate gap. US rates remain at 3.50%–3.75%, compared with Japan's 1.00%. Investors can borrow cheaply in yen and move the money into higher-paying US assets. This is called the yen carry trade, and it continues to support USD/JPY. The Federal Reserve minutes on August 19 will be important. A strongly hawkish message (meaning the Fed still wants higher rates) could strengthen the dollar. A more balanced message would keep attention on a possible BOJ hike.
📈 The Technical Position
USDJPY H4 Chart
H4: Rejection From the Key Area
The H4 chart, shows USD/JPY returning to an important selling area after the intervention decline.
Price previously rejected from the wider 160.40–162.00 region, fell through the first target near 157 and reached the second target around 155. It has now bounced back toward the lower part of that zone but is struggling beneath the main moving averages.
👁️🗨️ The Trade Idea
USDJPY H1 Chart
The H1 chart, provides a clearer entry and risk level.
Price is consolidating below the 159.05–160.10 area after rejecting from the larger H4 zone. The idea is to short near current levels, with the stop loss around 160.10.
The targets are:
Target 1: 156.60
Target 2: 155.20
Potential H4 target: 152.40
A sustained move above 160.10 would invalidate the immediate setup.
🧩 Final Word
Markets often move before the story feels obvious. Here, the warning is already visible: Japan and the US have defended the yen, the BOJ may raise rates again and USD/JPY has returned to the same area where sellers previously took control.
Below 160.10, our bias remains bearish on USD/JPY. The targets are 156.60, 155.20 and, if momentum builds, 152.40. A sustained move above 160.10 means the immediate setup is wrong and we step aside.
The edge is not predicting every move. It is knowing where the idea works, where it fails and how much you are willing to risk.
Stay Patient, Stay Safe and Happy Trading.
— The UE Market Letter Team 👁️🗨️
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