USDJPY recovered to the 159.4–159.5 region, approaching the psychological 160 level once again as the US dollar maintained its strength amid the market’s continued reassessment of the Federal Reserve’s monetary policy outlook.
After a mild pullback, the DXY stabilised around the 98.7–98.8 area, while the US 10-year Treasury yield, despite cooling from nearly 4.6%, remained elevated at around 4.45–4.47%. This suggests that US dollar yields continue to offer relative appeal, especially as the interest rate differential between the US and Japan remains tilted in favour of the greenback.
US April PCE data also reinforced the view that the Fed has limited room to shift toward aggressive policy easing in the near term. Headline PCE rose 3.8% year-on-year, marking the highest level since May 2023. Meanwhile, core PCE increased 3.3% year-on-year and 0.2% month-on-month, easing from the 0.3% monthly gain recorded in March but still remaining well above the Fed’s 2% inflation target. This makes it difficult for the market to expect an early Fed rate cut, thereby continuing to support the US dollar against the yen.
On the other side, the yen has yet to achieve a sustainable recovery, even as expectations for further BoJ policy normalisation have been rising. At its April 28 meeting, the BoJ kept its short-term interest rate unchanged at around 0.75%, but the decision was not unanimous, with 3 of 9 policy board members proposing raising the rate to 1.0%.
This indicates that views within the BoJ are gradually shifting toward a tighter policy stance, especially as inflation and import cost risks remain key concerns. However, even if the BoJ sends more hawkish signals, Japan’s policy normalisation pace remains significantly slower than that of the US interest rate environment. As a result, the US-Japan yield differential continues to weigh on the JPY and support USDJPY’s return to elevated levels.
However, the 160 area remains a highly sensitive zone for USDJPY. It is not only an important psychological threshold but also a level that could increase the risk of currency intervention from Japan. According to data from Japan’s Ministry of Finance, the country spent around 11.7 trillion yen, equivalent to more than USD 73 billion, to buy yen and support the exchange rate between late April and late May. Previous rounds of intervention triggered sharp short-term declines in USDJPY, showing that the market remains highly sensitive to the possibility of Japan taking action when the pair approaches or breaks above the 160 level.
Therefore, in the short term, USDJPY still has a basis to remain elevated as the US-Japan interest rate differential remains wide and the US dollar continues to be supported by expectations that the Fed is not in a hurry to ease policy. However, upside room above the 160 region may become more limited as the risk of currency intervention from Japan becomes increasingly clear.
In other words, the underlying trend for USDJPY still leans to the upside, but the area around 160 is a high-risk zone, where breakout attempts could quickly trigger profit-taking pressure or policy responses from Japan. If the pair breaks above 160 but fails to sustain its momentum, USDJPY could face a swift correction. Conversely, only if the pair holds firmly above 160 in the absence of fresh intervention signals would the upside move be confirmed and extend toward higher levels.
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