Japan is emerging from decades of ultra-accommodative monetary policy, during which the policy rate remained negative from 2016 until 2024. The Bank of Japan (BOJ), the country’s central bank, has since begun a cautious normalization process, raising rates to the current 0.50%, the highest level since 2008.
A minority of analysts expect a further hike to 0.75% by December, though the consensus remains that policy will stay broadly accommodative. While higher interest rates are, in principle, supportive for the yen, it is worth noting that Japan still maintains the lowest policy rate among developed markets.
This gradual tightening has been supported by rising inflation expectations, with headline inflation running around 2.9%, above the BOJ’s 2% target. However, Japan’s massive public debt, roughly 237% of GDP, significantly limits the central bank’s ability to pursue more aggressive tightening.
At the same time, weak wage growth continues to erode household purchasing power, weighing on private consumption. Combined with soft export momentum, this has contributed to slower GDP growth, which moderated to 1.2% year-on-year in the second quarter of 2025.
The combined effect of these forces is a persistently weak yen, with USDJPY trading near 155, well above the levels where the BOJ and the Ministry of Finance (MOF) have intervened in the past to stem excessive currency depreciation.
Technical Analysis
USDJPY is now trading firmly above the 150 to 152 area, the same zone where Japanese authorities intervened in 2022 and 2023 to prevent further currency weakening.
After falling from 158.87 in early 2025, when inflation briefly rose to 4%, the pair found solid support around 142 to 143, aligning with a long-term ascending trendline that began in early 2025. Following several months of consolidation between 142.50 and 146, USDJPY gained momentum in July 2025, breaking higher into the 146.50 to 149.30 range.
In early October, the pair resumed its upward trajectory, rallying sharply from 149 to around 154.72 in just over a month. This move also marked a decisive break above the long-term descending trendline drawn from the July 2024 high at 162 and confirmed at the January 2025 high of 158.87, a technical signal consistent with continued yen weakness.
In the short term, the rally that began in October is developing within a rising wedge pattern, with the upper boundary near 155.25 and the lower boundary around 153.50, which also corresponds to a potential retest from above of the previously broken long-term trendline.
Overall, both macroeconomic fundamentals and technical indicators suggest that the yen is likely to remain under pressure, meaning USDJPY remains biased to the upside. However, the movement is unlikely to be linear, and traders should plan entry points carefully while maintaining tight stop-loss levels.
A break below 153.00, although not our base-case scenario, could temporarily alter the short- to medium-term technical outlook.
