Japanese Yen strengthens on BoJ rate hike signals

The USD/JPY pair attracts some sellers to near 158.15 during the Asian trading hours on Thursday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) following hints from Japanese policymakers that interest rates will rise later this month. The US August Nonfarm Payrolls (NFP) report will take center stage later on Friday. 

The Bank of Japan (BoJ) governor Kazuo Ueda said on Tuesday that the central bank will debate raising interest rates, including in ‌September, with a focus on whether inflationary risks were heightening, hinting at a strong chance of a hike in September. Treasury Secretary Scott Bessent stated that he met Ueda and called for "decisive" monetary steps to combat the weak JPY. 

Overnight index swaps are now more than fully pricing in a standard 25 basis points (bps) rate hike at the BoJ’s September meeting. Pricing suggests only a very low likelihood of a 50 bps move. 

Traders await the US labor market data this week, including the highly anticipated NFP and Unemployment Rate. This report could offer some clues about the US interest rate path. 

Economists expect the US economy to add 58,000 jobs in August, while the Unemployment Rate is projected to hold steady at 4.1% during the same period. If the report shows stronger-than-expected outcomes, this could underpin the USD against the JPY in the near term.  

BoJ tightening path seen opening door to larger-than-usual rate moves

Strategists at Scotiabank note that recent BoJ commentary has subtly shifted market expectations around the pace and size of future tightening. They highlight that the remarks “hinted to the possibility of tightening in increments greater than the 25bpt adjustments typically delivered by central banks,” a move that would be “even less expected by the BoJ—given that it’s tightening out of negative rates and the zero lower bound have even favored 10-15bpt adjustments.” This evolving guidance underscores the potential for less conventional step sizes as Japan continues to normalize policy.

Technical Analysis: USD/JPY remains capped under the 100-day SMA

In the daily chart, USD/JPY keeps a bearish near-term bias as spot holds under the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-period middle band. Price is only marginally above the lower Bollinger band at 157.98, indicating the pair is pressing the lower edge of the recent range, while the Relative Strength Index (14) around 38.9 suggests subdued momentum after exiting oversold conditions.

On the topside, initial resistance is located at the Bollinger 20-period middle band around 159.18, ahead of the 100-day SMA at 159.99 and the upper Bollinger band near 160.38, which together define a dense cap for any recovery attempts. On the downside, immediate support is provided by the lower Bollinger band at 157.98; a decisive break below this level would open the door to further weakness, whereas holding above it could see USD/JPY consolidating while remaining constrained beneath the 159.00–160.00 resistance cluster.