At the start of the new week, the USD/JPY currency pair is attempting to recover after Friday's decline, triggered by the Bank of Japan meeting, when quotes fell below the significant psychological level of 157.00. On Monday the pair reached the 20-day SMA but failed to hold above it. Notably, the market barely reacted to another warning about possible currency intervention from Japanese Finance Minister Satsuki Katayama.
The finance minister emphasized that the joint Tokyo–Washington statement on exchange-rate issues remains relevant and that the government is ready to take decisive steps to curb excessive or chaotic depreciation of the Japanese yen. However, these words did not provide tangible support for the yen. The main reason was persistent uncertainty about the timing of the Bank of Japan's next key rate increase. Another factor pressuring the yen is the significant interest-rate differential between Japan and other economically strong countries. This also supports the USD/JPY pair.
At the same time, growing hopes for a diplomatic resolution of the geopolitical conflict in the Middle East create a headwind for the US dollar, which is traditionally perceived as a safe-haven asset. According to incoming reports, last Sunday Iranian representatives held a third round of talks with mediators from Qatar, focusing on reaching agreements aimed at stopping hostilities between the US, Israel and Iran. Moreover, the Iranian side proposed an initiative to open the Strait of Hormuz within 48 hours, provided the United States fulfills a set of demands. US President Donald Trump, in turn, expressed optimism about the progress of the talks, noting Iran's interest in concluding a deal.
Nevertheless, Donald Trump did not rule out the possibility of escalation after the midterm elections scheduled for November 3. It should be added that Iran's supreme leader Ali Khamenei ordered the top military command to prepare for a new phase of confrontation with the United States and Israel. In addition, recent Ukrainian drone attacks on Russian oil refineries have contributed to an increase in the geopolitical risk premium. This factor, combined with expectations of interest-rate hikes by the US Federal Reserve, works in favor of dollar bulls.
Macroeconomic data released last Thursday from the United States showed the economy's resilience and persistent inflationary pressure. Against this backdrop, concerns about rising inflation, fueled by high crude oil prices, increase the likelihood of further Fed monetary tightening.
According to CME Group's FedWatch tool, market participants assess the probability of a December rate hike by the US central bank at approximately 75%. This suggests that, for the US dollar and, accordingly, the USD/JPY pair, the most likely direction remains upward.
From a technical point of view, the USD/JPY pair is attempting to break through the 200-day EMA to return to Monday's high. Oscillators are neutral, but the relative strength index is trying to strengthen into positive territory, showing that bulls are gaining strength. However, because the MACD histogram is at zero, momentum appears to be fading. The 200-day SMA is key resistance; above it, bulls will take control of the market. The nearest support is provided by the 50-day SMA. Below it, Friday's low around the round level of 157.00 will also create a demand zone.