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Source: Newsmaker.id
The Japanese yen traded around 158.20 per US dollar on Monday (Oct 12), with market activity subdued as Japan observed a national holiday and US markets were closed. Despite thinner trading volumes, investor attention remained fixed on the yen's movement as it edged closer to the psychological level of 160 per dollar—a threshold previously identified as a sensitive point for Japanese authorities.
Pressure on the yen continues to stem from the wide interest rate differential between the US and Japan. Borrowing costs in Japan remain relatively low compared to the US, making dollar-denominated assets more attractive in terms of yield. Japan's heavy debt burden also remains a concern for investors, limiting the scope for the yen to strengthen.
Regarding monetary policy, the market remains uncertain whether the Bank of Japan (BoJ) will raise interest rates again at this month's meeting. However, the possibility of a hike in December or January remains on the table. BoJ Governor Kazuo Ueda has previously noted that rapid monetary tightening occurred primarily in North America and Europe in 2022, driven by supply chain disruptions and a post-pandemic surge in demand that fueled inflation.
Consequently, the trajectory of the USD/JPY pair remains heavily dependent on how the BoJ responds to the yen's weakness and domestic inflationary pressures. The longer the BoJ maintains its relatively loose policy, the greater the pressure on the yen, particularly while US yields remain high. Conversely, firmer signals of a rate hike from the BoJ could narrow the yield gap and provide room for the yen to appreciate.
The 160 level is viewed as a critical zone for the USD/JPY pair. As the pair approaches this level, the risk of Japanese government intervention rises, potentially increasing volatility in the yen's movements. For now, the market is awaiting new catalysts—such as Bank of Japan policy, US Treasury yield movements, and Japanese economic data—before determining its next direction.