• USD/JPY extends the overnight pullback from the weekly high, though the downside seems limited.
• BoJ rate hike bets and looming intervention fears support the JPY, exerting pressure on spot prices.
• Hawkish Fed, elevated US bond yields and geopolitical risks underpin the USD, limiting the downside.

The USD/JPY pair drifts lower during the Asian session on Thursday, extending the previous day’s pullback from a one-and-a-half-week high, around the 158.50 region. Spot prices, however, remain confined in a familiar range and currently trade near the lower end of the weekly range, around the 157.85-157.80 region, down 0.15% for the day.

Data released on Wednesday showed that Japan’s real wages recorded growth for the eighth consecutive month in August. Moreover, hawkish comments from Bank of Japan (BoJ) board member Ayano Sato and Governor Kazuo Ueda reaffirmed expectations for more interest rate hikes. This, along with speculation that Japanese authorities will step in again to prop up the domestic currency, offers some support to the Japanese Yen (JPY) and exerts some downward pressure on the USD/JPY pair.

Meanwhile, the US Dollar (USD) retains its bullish undertone near the highest level since April 2025 amid a combination of supporting factors. Minutes of the September 15-16 FOMC meeting revealed that the committee voted unanimously to raise the federal funds rate target range, and most officials expect that another rate increase would likely be appropriate by the year-end to combat persistent inflation. Furthermore, elevated  US bond yields act as a tailwind for the buck amid geopolitical risks.

In fact, the Pentagon reportedly told US Central Command (CENTCOM) several days ago to conclude preparations for resuming major combat operations in Iran as US President Donald Trump weighs a specific date for launching strikes. The US and Israeli sources said that US attacks could happen before the US midterm elections and possibly the Israeli elections a week earlier. This, in turn, might continue to benefit the safe-haven USD and help limit the downside for the USD/JPY pair.

Traders now look to the release of the usual Weekly Initial Jobless Claims data, which, along with speeches from influential FOMC members, will drive the USD. Apart from this, further developments surrounding the Middle East crisis might continue to infuse volatility across the global financial markets and contribute to producing short-term opportunities. Meanwhile, the fundamental backdrop warrants some caution before placing aggressive bearish bets on the USD/JPY pair.

USD/JPY daily chart

Technical Analysis

The USD/JPY pair continues its struggle to make it through the 158.50 confluence hurdle – comprising the 200-day Simple Moving Average (SMA) and the 50.0% Fibonacci retracement. This suggests that rallies remain capped by a dense band of overhead resistance despite the broader uptrend seen over recent weeks.

That said, a sustained move beyond the said barrier could lift the USD/JPY pair to the 61.8% level at 159.75, then 78.6% at 161.62 and the cycle high area at 164.00. On the downside, immediate support appears at the 38.2% retracement at 157.13, ahead of the 23.6% level at 155.51, while a deeper pullback would expose the structural floor around the Fibonacci anchor near 152.88.