USDJPY is recovering after a period of sharp volatility. Previously, the pair fell steeply from around 160 to the 155 area, as markets suspected that Japan had intervened to support the yen.
However, in recent sessions, USDJPY has rebounded to around 158.9, suggesting that downward pressure on the yen has not completely disappeared.
This indicates that although intervention risks from Japan remain present, the underlying support for USDJPY is still relatively strong, particularly from the U.S.–Japan interest rate differential and expectations that the Fed will maintain a tighter policy stance for longer.
According to a Reuters poll published on May 15, 2026, nearly two-thirds of economists expect the BoJ to raise its policy rate to 1.0% in June, as the central bank continues the process of monetary policy normalization. This could support the yen over the medium term, especially if the BoJ signals that its rate-hiking path will not stop after just one adjustment.
However, the key issue lies in the pace of tightening. Markets are not only focused on whether the BoJ will raise interest rates, but also on whether it will be decisive enough to significantly narrow the yield gap with the U.S. A rate hike to 1.0% could support the yen in the short term, but if the BoJ continues to signal caution afterward, the impact on USDJPY may remain limited.
On the other hand, the U.S. dollar continues to receive strong support from U.S. inflation data. U.S. CPI rose 0.6% month-on-month in April, while annual inflation recorded its strongest increase in three years. This has raised concerns that price pressures in the U.S. remain persistent, especially as energy costs contributed significantly to the increase in inflation.
In addition to CPI, PPI data also reinforced the view that the Fed may find it difficult to shift toward easing soon. With both CPI and PPI heating up, markets have reason to believe that the Fed will continue to keep interest rates high for longer, while the risk of further tightening cannot be completely ruled out if inflation does not cool.
This is an important foundation behind the recovery in USDJPY. As U.S. yields remain elevated, the dollar stays more attractive than the yen in carry trades. This is especially important for USDJPY, as the pair is highly sensitive to the U.S.–Japan yield differential. Therefore, as long as U.S. data remains hot and the Fed has not clearly signaled a policy pivot, the downside pressure on USDJPY is likely to remain limited.
Another factor to watch is the yield on Japanese government bonds. The Financial Times reported that the 10-year JGB yield had risen to 2.73%, its highest level since 1997, while the 30-year yield climbed to 4%, a record high since the maturity was first issued in 1999. Higher JGB yields could increase expectations of Japanese capital repatriation, thereby supporting the yen over the medium term. However, this impact may unfold gradually rather than trigger an immediate reversal in USDJPY.
Besides monetary policy, the U.S.–China meeting could also have an indirect impact on USDJPY through global risk sentiment. If trade tensions ease and expectations for cooperation between the two major economies improve, demand for the yen as a safe-haven currency may weaken, indirectly supporting USDJPY. However, this impact is likely to be more of a short-term sentiment driver, as the main trend in USDJPY still depends primarily on the U.S.–Japan interest rate differential, the Fed outlook, BoJ policy, and intervention risks around the 160 level.
Looking ahead, USDJPY is likely to be driven by several key factors. First, the 160 level remains highly sensitive, not only from a technical perspective but also from a policy perspective. If the exchange rate approaches or breaks above this level too quickly, markets may continue to price in the risk of Japan issuing stronger warnings or intervening to support the yen. In addition, the BoJ’s policy decision in June will be very important. If the BoJ raises rates and signals a more hawkish stance, the yen could receive stronger support. Conversely, if the BoJ remains cautious, pressure on the yen may not ease significantly.
On the U.S. side, data such as CPI, PCE, employment, and wage growth will continue to shape expectations for the Fed. If inflation and the labor market remain hot, the dollar may maintain its strength, helping USDJPY stay elevated. In addition, global risk sentiment following U.S.–China developments, oil prices, and geopolitical tensions may also create short-term volatility for the pair.
From my personal perspective, USDJPY is likely to remain in a tug-of-war in the short term. The base case is for the pair to trade within the 156–160 range, with recovery momentum still intact if the dollar continues to be supported by high yields. However, the closer USDJPY moves toward 160, the greater the risk of a sudden correction, as markets will have to price in the possibility of further intervention from Japan. Therefore, the upside in USDJPY is no longer as favorable as before and is now being capped by policy risks from Japan.
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