The US dollar remains supported by elevated Treasury yields and expectations of further Fed tightening, yet USD/JPY is struggling to regain bullish momentum near its 200-day SMA. AUD/JPY is also showing signs of fatigue following a bearish outside day. With both yen crosses stalling near resistance, the potential for a Japanese yen rebound is growing, although a fresh catalyst may be needed to trigger a more convincing reversal.
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Japanese Yen Rebound Risks Build as USD/JPY and AUD/JPY Lose Momentum
US Dollar Supported by Hawkish Fed and Elevated Treasury Yields
The US dollar strengthened on Wednesday as renewed Iran tensions kept oil prices elevated and reinforced inflation concerns, helping drive Treasury yields higher. The move was also supported by euro weakness and expectations that the Fed may still need to tighten again this year.
The FOMC minutes showed that, while policymakers were unanimous in raising rates in September, there was less agreement over the timing of the next move. Officials including Williams and Jefferson have argued there is no need to rush, with markets now favouring December over October for another hike. The minutes therefore kept the Fed’s tightening bias intact without materially reviving near-term hike expectations.
The surge in Treasury yields briefly eased after a strong $39 billion 10-year auction attracted robust demand. The sale drew a 2.77 bid-to-cover ratio, with indirect bidders taking more than 80% of the issue, helping push the 10-year yield back from an earlier peak near 5.36%. While that removed some rate support for the US dollar, yields remained historically elevated and continued to underpin the broader USD rally.
US Dollar Strength Weighs on FX, Commodities and Equities
- US Dollar: Broadly stronger as hawkish Fed expectations and elevated Treasury yields weigh on FX majors. GBP/USD (-0.47%) and EUR/USD (-0.56%) lead declines.
- Japanese Yen: USD/JPY holds broadly flat (+0.02%), outperforming most dollar pairs as yen demand remains resilient.
- Commodities: Gold (-1.27%) and silver (-2.50%) retreat amid USD strength, while WTI crude (-1.30%) also weakens.
- Equity Indices: European stocks lead losses, with the DAX (-1.51%) and CAC 40 (-1.23%) underperforming. Wall Street futures slip around 0.3%.
- Risk Sentiment: Nikkei 225 (-1.49%) and broad European weakness point to a cautious tone, despite relatively modest losses in US futures.
USD/JPY Technical Analysis: US Dollar vs Japanese Yen
We’re at a slight stalemate between the BOJ and Fed, with traders having scaled back bets on both central banks delivering more aggressive rate hikes. That has reduced volatility in USD/JPY for now, though that is not to say it cannot return. What has caught my eye is that Wednesday’s high met resistance at the 200-day SMA, forming a small bearish pinbar.
While we obviously need a catalyst to see momentum roll over from here, the fact that USD/JPY is struggling to retest the 159.04 high is at least an indication that bulls are losing steam. Bullish momentum has faded, and price action is now choppy beneath a swing high – which, to me, are clues of a potential inflection point. Now we just need the catalyst.
Source: ICE, TradingView
AUD/JPY Technical Analysis: Australian Dollar vs Japanese Yen
It remains up for debate whether we’re about to witness a sharp break lower as part of a multi-month topping pattern, or see AUD/JPY recycle higher towards 112 before the real selloff begins.
The weekly AUD/JPY chart shows that the strong uptrend between April 2025 and 2026 is still within its corrective phase. Even a move down to 106 – near its December VPOC – could still be deemed an orderly pullback for the Australian dollar against the Japanese yen in the grand scheme of things.
Pullback Risks Rise as Bears Eye 111 Resistance
But perhaps we could be in for a minor pullback over the near term, given that a four-day rally was broken on Wednesday with a bearish outside day. Note that yesterday’s high stalled around a high-volume node (HVN) of the recent decline, and the monthly pivot point is nearby, just beneath 111. Bears could seek to fade minor rallies while AUD/JPY remains beneath the 111 area.
Though a strong selloff would likely require intervention by Japan’s Ministry of Finance (MOF), a broad risk-off tone – or both combined.
Note the potential support levels around the 1991 high (109.7), 2024 high (109.37) and March low (108.78).
Source: ICE, TradingView
