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Japanese Yen Under Pressure as USD/JPY Nears 156 Ahead of Crucial BoJ Decision

Introduction

The Japanese Yen (JPY) remains deeply under pressure, hovering near its weekly lows against the US Dollar, as global currency markets brace for a pivotal Bank of Japan (BoJ) policy decision. With USD/JPY edging toward the psychologically important 156.00 level, investors are increasingly uneasy about the yen’s long-term stability.

While the US Dollar holds firm against major peers including the yen and British pound concerns are growing that Japan’s ultra-loose monetary stance could turn the weak yen into a financial ticking time bomb, especially amid global geopolitical risks, shifting Federal Reserve expectations, and heightened market volatility.

This article breaks down the current yen weakness, key drivers behind USD/JPY strength, the impact of global events and Jerome Powell’s signals, and what to expect in the coming week.

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Why the Japanese Yen Remains Weak

1. BoJ Policy Divergence Remains the Core Issue

The primary reason for the yen’s continued weakness is policy divergence between Japan and other major economies.

• The Bank of Japan continues to maintain one of the most accommodative monetary policies in the world.
• In contrast, the Federal Reserve despite moving closer to easing still offers significantly higher yields, making the US Dollar more attractive.

This yield gap keeps pressure on the yen, as investors favor carry trades that involve borrowing in yen and investing in higher-yielding currencies.

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2. USD/JPY Eyes 156.00 as Bulls Stay in Control

USD/JPY has rebounded from a brief two-week high for the yen, with buyers stepping back in ahead of the BoJ meeting.

Key technical and market factors include:

• Strong support for USD/JPY above recent pullback levels
• Persistent demand for the US Dollar as a safe-haven asset
• Limited conviction that the BoJ will deliver meaningful policy tightening

As long as expectations remain subdued, yen bulls are reluctant to commit, keeping the currency heavily offered.

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A Weak Yen A Ticking Time Bomb?

Japan’s weak currency offers short-term benefits, such as improved export competitiveness. However, the risks are mounting:

• Imported inflation continues to rise, squeezing households and businesses
• Energy and food costs remain elevated due to yen depreciation
• Prolonged weakness risks undermining consumer confidence and domestic demand

Market participants increasingly warn that without a credible shift in policy guidance, the yen’s decline could become destabilizing rather than supportive.

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Global Factors Adding Pressure

Geopolitical Risks and Safe-Haven Demand

Ongoing war-related and geopolitical tensions continue to shape currency flows. While the yen was once a go-to safe haven, that role has weakened in recent years.

Instead:

• The US Dollar has benefited more from risk-off sentiment
• Investors remain cautious about holding yen amid policy uncertainty

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Jerome Powell’s Speech and Fed Expectations

Federal Reserve Chair Jerome Powell’s recent remarks reinforced a cautious, data-dependent approach.

Key takeaways for FX markets:

• Rate cuts are expected, but not aggressively or immediately
• US yields remain relatively attractive
• The dollar retains underlying support against low-yield currencies like the yen

This environment limits the yen’s ability to recover meaningfully without domestic policy action.

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Dollar Strength vs Other Majors

The US Dollar is not only outperforming the yen but is also holding gains against:

• British Pound (GBP) amid UK economic uncertainty
• Other major currencies facing growth and inflation challenges

This broad-based dollar strength further compounds pressure on USD/JPY.

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Weekly Forecast What to Watch Next

Key Events This Week

• Bank of Japan policy decision
• BoJ press conference and forward guidance
• US inflation data and economic releases
• Further commentary from Fed officials

USD/JPY Outlook

• Bullish bias remains intact above key support levels
• A dovish BoJ outcome could push USD/JPY beyond 156.00
• Any surprise shift toward tighter policy could trigger sharp but potentially short-lived yen strength

Volatility is expected to rise significantly around the BoJ announcement.

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ltas Opinion Why This BoJ Meeting Matters More Than Ever

From an Altas perspective, the yen’s weakness is no longer just a currency story it’s a credibility test for Japan’s monetary policy.

If the BoJ once again signals patience without addressing:

• rising inflation pressures
• currency stability
• market confidence

then the yen risks sliding further, inviting speculation, potential intervention, and long-term economic strain.

However, even a modest shift in tone acknowledging currency risks could provide temporary relief. The challenge lies in balancing growth support with currency stability in an increasingly fragile global environment.

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Frequently Asked Questions (FAQ’s)

Why is the Japanese yen so weak right now?

The yen is weak due to large interest rate differences between Japan and the US, combined with expectations that the BoJ will keep monetary policy loose.

What is the significance of USD/JPY near 156.00?

156.00 is a psychologically important level. A break above it could trigger further buying and raise concerns about excessive currency weakness.

Can the BoJ stop the yen’s decline?

Only a clear shift toward tighter policy or strong guidance addressing currency weakness can sustainably support the yen.

How does Jerome Powell affect USD/JPY?

Powell’s cautious stance keeps US yields relatively high, supporting the dollar and pressuring low-yield currencies like the yen.

Is a weak yen good or bad for Japan?

It helps exporters but raises import costs and inflation, which can hurt consumers and long-term economic stability.

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Conclusion

The Japanese yen remains at a critical juncture as USD/JPY flirts with multi-week highs ahead of the Bank of Japan’s policy decision. While global factors, Fed expectations, and geopolitical risks continue to favor the US Dollar, the ultimate fate of the yen now rests with Japan’s central bank.

Without a meaningful policy signal, yen weakness may persist turning a once-manageable decline into a deeper structural challenge for the Japanese economy.

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