USD/JPY Outlook: Yen Volatility Rises as Intervention Risks Return

The Japanese yen remains firmly in focus into the end of the week, continuing to exhibit elevated volatility relative to other major currencies. USD/JPY saw a sharp pullback during the Asian session, briefly dipping to the 157.97 area following renewed verbal intervention from Japan’s finance minister, Katayama. The pair has since recovered toward 158.30, though it remains capped below earlier highs around 158.60 to 158.70.

While verbal intervention from Tokyo officials is not uncommon during periods of yen weakness, the latest comments carried a more explicit warning. Katayama noted that Japan’s readiness to intervene is included as an option under the US–Japan agreement, signalling confidence that authorities retain scope to act should market conditions become disorderly. This rhetoric has tempered near-term downside pressure on the yen.

Fundamental Backdrop

Despite today’s caution, the broader macro narrative continues to lean against the yen. The so-called Takaichi trade remains a key driver, supported by expectations of looser fiscal and monetary policy should her leadership consolidate. This theme has underpinned persistent demand for yen crosses since October.

That said, political risks are becoming more relevant. With speculation around a snap election increasing, Credit Agricole highlights that growing opposition to Takaichi’s premiership could reduce the one-sided nature of yen selling. Positioning is already heavily skewed toward further yen weakness, raising the risk of a buy-the-rumour, sell-the-fact response once an election is formally announced.

Technical Outlook

From a technical standpoint, USD/JPY has broken below the 100-hour moving average after several failed attempts earlier in the week. This shifts the near-term bias toward neutral, with price now consolidating between the 100-hour and 200-hour moving averages.

This structure suggests a period of consolidation may develop as markets reassess intervention risks, political developments, and positioning.

Key Levels

• Resistance: 158.60 to 158.70

• Near-term resistance: 158.30

• Support: 157.95 to 158.00

• Lower support: 157.20

A sustained move above 158.70 would signal renewed upside momentum, while a clear break below 157.95 would open scope for a deeper corrective pullback.

USD/JPY 1H Chart

Trade Bias

• Near-term bias: Neutral to mildly bearish USD/JPY

• Upside risks: Yield support and fading intervention concerns

• Downside risks: Escalation in official rhetoric, crowded positioning, political uncertainty.

  
  

Tactically, rallies toward resistance may continue to attract selling interest while the pair remains below recent highs, with risk management remaining essential given the potential for sudden policy-related headlines.

Bottom Line

While the broader trend continues to favor yen weakness, near-term conditions are becoming less one directional. Intervention rhetoric, political uncertainty, and stretched positioning are introducing two-way risk into USD/JPY. As a result, the pair may struggle to extend gains in the immediate term, with consolidation or corrective moves increasingly likely before the next directional catalyst emerges.