USD/JPY Stays Bullish as Rising JGB Yields Add Pressure on the Yen

USD/JPY remains strongly supported as rising Japanese bond yields, persistent inflation pressures, and higher energy prices continue to increase stress on Japan’s economy and financial system. Markets are becoming more concerned that Japan may struggle to control both rising long-term bond yields and continued yen weakness at the same time.

Japan’s long-dated government bond yields have surged to their highest levels in decades, not because markets expect aggressive Bank of Japan rate hikes, but because investors are increasingly worried about inflation, fiscal risks, and Japan’s heavy reliance on imported energy. Higher oil and gas prices are also weakening Japan’s current account position, creating additional downside pressure on the yen.

At the same time, markets are now pricing in more Federal Reserve tightening this year, helping support US yields and the US dollar further. Technically, USD/JPY remains in a strong uptrend and is now testing the important 159 resistance zone. A breakout above 159 could open the path toward the yearly high near 160.73 and potentially the 2024 high near 161.95.

Support levels are seen near 157.92 and the 50-day moving average. Momentum indicators also continue to favour further upside. Overall, unless the Bank of Japan can stabilise bond markets without weakening the yen further, the broader outlook continues to favour USD/JPY strength.

USD/JPY Daily Chart