The Fed's dovish signals put pressure on the dollar, causing the dollar to fall slightly against the yen.
2025-11-25 14:54:04
The yen remained strong during Tuesday's Asian session, pushing the USD/JPY pair to continue its downward trend. Market expectations of potential foreign exchange intervention by the Japanese government significantly increased, becoming the most direct boost to the yen.
Japanese Finance Minister Satsuki Katayama issued her strongest warning of the year last week, saying the government would take appropriate action against “excessive volatility and disorderly trends”; Takuji Aida, a member of the government’s core group, also said that Japan could actively intervene to buffer the economic pressure caused by the weak yen.
These statements reinforced market confidence in the Japanese government's actions, making investors reluctant to continue accumulating long positions in USD/JPY at high levels. Although the expectation of intervention provided short-term support for the yen, its appreciation momentum remained limited by multiple domestic factors.
The Japanese cabinet recently approved a massive 21.3 trillion yen economic stimulus package, the largest since the pandemic began, with a supplementary budget planned for approval as early as November 28. This has exacerbated concerns about Japan's deteriorating fiscal situation.
Meanwhile, Japan's economy contracted for the first time in six quarters in the third quarter, indicating that the pressure from weak domestic demand and slowing business activity persists, leaving the market with doubts about the possibility of the Bank of Japan raising interest rates in December.
Although Governor Kazuo Ueda emphasized that a weak yen could push up inflation and did not close the door to interest rate hikes, the market generally believes that against the backdrop of economic downturn, the central bank is unlikely to accelerate policy normalization rashly.
Alongside the complex situation in Japan, the US dollar itself faces adjustment pressures. Recent dovish signals from Federal Reserve officials have reinforced market pricing in a December rate cut.
Federal Reserve Governor Waller pointed out on Monday that the weakness in the job market is sufficient to support a further 25 basis point rate cut, while New York Fed President Williams also said last week that a near-term rate cut is still achievable without jeopardizing the inflation target.
These comments quickly boosted the market's probability of a December rate cut to nearly 80%, and the dollar, after hitting a multi-month high last week, saw a significant pullback, putting pressure on the dollar against the yen in the short term.
Although both the US dollar and the Japanese yen are influenced by policy expectations, global risk appetite remains relatively stable in terms of broader asset performance, which has prevented a large-scale inflow of safe-haven funds into the yen.
Furthermore, the recent record high yields on Japanese ultra-long-term government bonds reflect market concerns about the fiscal outlook and debt supply, a factor that has actually dampened the yen's attractiveness as a long-term asset. Therefore, the pullback in USD/JPY is more of a short-term correction driven by news than a trend reversal.
From a technical perspective, the overall upward structure of USD/JPY remains solid. The 156.20 area is a key short-term support level. If this area holds, the exchange rate still has a chance to move back towards the 157.00 level and further challenge the 157.50 area, or even the high of 157.90 reached last week.
If the exchange rate breaks through 158.00, it will open up new upside potential. A break below 156.00 could trigger further correction, but buying support is expected at 155.40 and 155.00, while the 154.50 area is a more crucial medium-term bottom.
The market is awaiting the delayed release of US PPI, retail sales, and other economic data, which could influence expectations ahead of the Fed's December meeting and thus drive the USD/JPY pair to make a clearer directional choice within its key support range.
If the data is weak, the dollar may come under further pressure, causing the exchange rate to test below 156.00; if the data is strong, the dollar may regain momentum and push the exchange rate to attempt to go back above 158.00.
Editor's Note:
The yen's short-term strength stems more from policy and verbal intervention than from its economic fundamentals; the dollar's weakness arises from easing expectations rather than actual economic deterioration. Therefore, both lack a clear trend or unilateral momentum, making it more likely that the USD/JPY pair will maintain a range-bound trading pattern and consolidate at higher levels.
This week's key US data will be the real determinant of short-term direction. With policy expectations and fundamentals intertwined, the exchange rate will likely continue to fluctuate within the 156-158 range.
Japanese Finance Minister Satsuki Katayama issued her strongest warning of the year last week, saying the government would take appropriate action against “excessive volatility and disorderly trends”; Takuji Aida, a member of the government’s core group, also said that Japan could actively intervene to buffer the economic pressure caused by the weak yen.
These statements reinforced market confidence in the Japanese government's actions, making investors reluctant to continue accumulating long positions in USD/JPY at high levels. Although the expectation of intervention provided short-term support for the yen, its appreciation momentum remained limited by multiple domestic factors.
The Japanese cabinet recently approved a massive 21.3 trillion yen economic stimulus package, the largest since the pandemic began, with a supplementary budget planned for approval as early as November 28. This has exacerbated concerns about Japan's deteriorating fiscal situation.
Meanwhile, Japan's economy contracted for the first time in six quarters in the third quarter, indicating that the pressure from weak domestic demand and slowing business activity persists, leaving the market with doubts about the possibility of the Bank of Japan raising interest rates in December.
Although Governor Kazuo Ueda emphasized that a weak yen could push up inflation and did not close the door to interest rate hikes, the market generally believes that against the backdrop of economic downturn, the central bank is unlikely to accelerate policy normalization rashly.
Alongside the complex situation in Japan, the US dollar itself faces adjustment pressures. Recent dovish signals from Federal Reserve officials have reinforced market pricing in a December rate cut.
Federal Reserve Governor Waller pointed out on Monday that the weakness in the job market is sufficient to support a further 25 basis point rate cut, while New York Fed President Williams also said last week that a near-term rate cut is still achievable without jeopardizing the inflation target.
These comments quickly boosted the market's probability of a December rate cut to nearly 80%, and the dollar, after hitting a multi-month high last week, saw a significant pullback, putting pressure on the dollar against the yen in the short term.
Although both the US dollar and the Japanese yen are influenced by policy expectations, global risk appetite remains relatively stable in terms of broader asset performance, which has prevented a large-scale inflow of safe-haven funds into the yen.
Furthermore, the recent record high yields on Japanese ultra-long-term government bonds reflect market concerns about the fiscal outlook and debt supply, a factor that has actually dampened the yen's attractiveness as a long-term asset. Therefore, the pullback in USD/JPY is more of a short-term correction driven by news than a trend reversal.
From a technical perspective, the overall upward structure of USD/JPY remains solid. The 156.20 area is a key short-term support level. If this area holds, the exchange rate still has a chance to move back towards the 157.00 level and further challenge the 157.50 area, or even the high of 157.90 reached last week.
If the exchange rate breaks through 158.00, it will open up new upside potential. A break below 156.00 could trigger further correction, but buying support is expected at 155.40 and 155.00, while the 154.50 area is a more crucial medium-term bottom.
The market is awaiting the delayed release of US PPI, retail sales, and other economic data, which could influence expectations ahead of the Fed's December meeting and thus drive the USD/JPY pair to make a clearer directional choice within its key support range.
If the data is weak, the dollar may come under further pressure, causing the exchange rate to test below 156.00; if the data is strong, the dollar may regain momentum and push the exchange rate to attempt to go back above 158.00.
Editor's Note:
The yen's short-term strength stems more from policy and verbal intervention than from its economic fundamentals; the dollar's weakness arises from easing expectations rather than actual economic deterioration. Therefore, both lack a clear trend or unilateral momentum, making it more likely that the USD/JPY pair will maintain a range-bound trading pattern and consolidate at higher levels.
This week's key US data will be the real determinant of short-term direction. With policy expectations and fundamentals intertwined, the exchange rate will likely continue to fluctuate within the 156-158 range.
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