Pick of the week: USD/JPY

If you want to trade a volatile asset class right now, foreign exchange, specifically yen crosses and USD/JPY, is the place to find it. The yen has seen a huge uplift in its volatility in recent days, and is higher by more than 1.5% so far this week.

A story of intervention

The yen is a product of official Japanese and US pressure to strengthen the currency. Japanese officials first started intervening in the currency back in May when USD/JPY first hit 160.00. This round of physical intervention to buy the yen and strengthen the currency did not work, and USD/JPY climbed back to a high just below 164 at the end of July. At this point, the US joined forces with the Japanese to prop up the currency and buy yen. It is very rare that the US intervenes in a foreign currency, and the FX market has taken note. This marked a high point for USD/JPY, and since then it has dropped more than 10 big figures.

This week, there has been another sharp drop in USD/JPY, from 160.00 to 153, the currency is trading just above this level at the time of writing. This time it is not known if US or Japanese authorities psychically bought the yen, however, there has been indirect intervention.

The US controls the yen

Earlier this week, the US Treasury Secretary Scott Bessent said ‘I am the house’, when it came to where the yen goes next. This is a powerful statement, he is basically saying that he has more information than the general market and if the US wants a stronger yen, they will get one. He also said the market can try and test his resolve, hinting that they will lose. This is an unusual style of jawboning, but it has worked and USD/JPY dropped another 70 pips on the back of these comments on Wednesday.

What next for the yen

The question now is, will the market listen to Bessent and will the yen keep strengthening, weakening USD/JPY? We think that the market will take Bessent, who was a former hedge fund manager who traded in FX for decades, at his word. The multilateral intervention in July to strengthen the yen marked a line in the sand for the Japanese currency, and it has weakened since then.

Because the yen is being manipulated higher by Japanese and US officials, technical analysis can get tricky, however, we can assert the following:

• Momentum is firmly to the downside for USD/JPY
• 160.00 is still resistance, and we do not see this pair going above this level in the long term.
• 155.00 is key ST resistance, we do not think that Scott Bessent staked his reputation by saying he was ‘the house’, to see USD/JPY return to this level.
• A move to 150.00 appears inevitable.
• It is folly to try to beat the ‘House’ and bet against the US and Japanese authorities at this stage.

What is Bessent and the US change their minds about the yen?

But, what happens below 150? This gets tricky. Some analysts are looking for a move back to 140 for USD/JPY, the lowest level since 2023, but we think this will take some time.

Added to this, there may be a limit to how much the US wants the yen to strengthen. Although a weak dollar boosts US trade, a strong yen along with rising Japanese bond yields could mean that Japanese investors start selling their holdings of US Treasuries. This is something that Bessent will not want to see, since Japan is the world’s largest holder of US Treasuries and US yields have already risen to multi year highs in 2026.

What the (near term) future may hold

If we see USD/JPY drop below 150 in the next few days, we think that a move to 140 will take much longer. An unruly unwind of USD/JPY could have unintended consequences for global financial markets. If Bessent is the house, then he should be able to make the yen rise and fall according to his timetable, and USD/JPY may not be a one-way bet in the longer term.

Chart 1: USD/JPY, how the mighty fall

Source: XTB, Past performance is not a reliable indicator of future results.