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Japanese Yen slips as Oil lifts yields ahead of the Fed
Confirmed
In Short: The Japanese Yen has gained ground against major currencies, supported by rising oil prices and expectations of US Federal Reserve tightening, though the US Dollar remains firm.
The Japanese Yen has strengthened against a basket of major and minor currencies, extending its gains for a fourth consecutive day and moving toward a retest of its seven-month high. This strength is supported by the continued weakness of the US Dollar, which is being pushed higher by rising oil prices and inflation expectations.
According to FXStreet, a more hawkish repricing of the Bank of Japan's normalization path might continue to underpin the Japanese Yen, limiting the upside for USD/JPY. However, the US Dollar is doing well, helped by a sharp jump in oil that has pushed US Treasury yields higher.
West Texas Intermediate (WTI) Oil has surged more than 3% on Tuesday, with higher energy costs feeding into inflation expectations and lifting yields and the safe-haven Dollar. Strong Japanese wage and growth data have also firmed these bets, and speculators have trimmed their positions against the Yen since the summer's intervention.
FXStreet notes that rising Japanese government bond (JGB) yields and expected faster policy rate hikes in 2026–2027 should support the Yen and domestic bond demand over time. However, the more important response must come from the Bank of Japan, particularly through establishing a tightening cycle that extends well beyond September, as confirmed by recent data confirming Japanese selling of US dollars.
What's confirmed
- That said, a more hawkish repricing of the BoJ normalization path might continue to underpin the Japanese Yen and could limit USD/JPY's upside..
What's still developing
- The altcoins are facing downside pressure ahead of the CLARITY Act cloture vote scheduled for Tuesday.
- Treasury Secretary Scott Bessent’s warning on testing Japanese Yen intervention.
- AUD/USD battles to maintain the positive performance ahead of the opening bell in Asia.
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- AUD/USD adds to Monday’s retracement, although it manages well to keep the trade above the 0.7100 yardstick ahead of the opening bell in Asia.