The Japanese Yen (JPY) traded in a narrow range during thin holiday trading on Tuesday, with USD/JPY hovering around 159.30 after nearly 1% gains the previous day, as Japanese markets were closed for the Mountain Day holiday [2]. The Yen has retraced about half of its recent intervention-driven rally, testing the resolve of officials in Tokyo and Washington to support the currency [2]. Analysts noted that the lack of follow-through on joint intervention, particularly after Friday's soft US jobs data, suggests a passive strategy by Japanese authorities aimed at slowing the Dollar's rise rather than reversing the Yen's multi-year decline [2]. Market participants remain heavily short on the Yen, with the largest net-short positions since early 2024 [2].
In the EUR/JPY cross, the pair depreciated after modest gains, trading around 183.80 during Asian hours on Tuesday. The Relative Strength Index (14) at 47.63 indicates ongoing bearish momentum, and the cross remains below the 50-day Exponential Moving Average (EMA), reinforcing a mildly bearish near-term bias [1]. Initial support is at the nine-day EMA at 183.34, with a break below this level potentially pushing EUR/JPY toward the eight-month low of 179.37 and the nine-month low of 175.70 [1]. On the upside, resistance is at the 50-day EMA at 184.57, with further advances potentially targeting the all-time high of 187.95 recorded on April 17 [1].
Monetary policy expectations in Japan are shifting. According to BNY’s Wee Khoon Chong, markets are now pricing in roughly a 50% chance of a 25 basis point Bank of Japan (BoJ) hike in September and a full hike by year-end, reflecting growing conviction that the BoJ will move further away from its ultra-accommodative stance [1][2]. Jiji Press reports that the BoJ may consider another rate increase at its September 17–18 meeting, following its June hike, to address inflationary pressures from AI-driven demand, Yen depreciation, and high global crude oil prices [2]. This would represent an accelerated timeline, as previous consensus expected rate increases about every six months [2].
The USD/JPY pair is also influenced by US economic data, with the US Dollar facing headwinds after a weaker-than-expected July payrolls report, which sparked a dovish shift in market expectations regarding the Federal Reserve's next moves [2]. However, rising geopolitical tensions and a rally in crude oil have pushed Treasury yields higher, raising concerns that the Fed may need to raise rates sooner despite a cooling labor market [2]. Investors are closely watching upcoming inflation data this week for further clues [2].
The Euro was the weakest against the New Zealand Dollar among major currencies, and EUR/JPY saw a -0.06% change on the day [1].
CONCLUSION
The Japanese Yen remains in focus as intervention speculation and shifting BoJ rate hike expectations drive market sentiment. Both EUR/JPY and USD/JPY are trading near key technical levels, with bearish momentum prevailing in EUR/JPY and policy uncertainty influencing USD/JPY. Market participants are closely monitoring central bank actions and upcoming economic data for further direction.