USD/JPY edges higher on Monday as the US Dollar (USD) finds some stability following last week’s sharp volatility, with geopolitical developments back in focus as the United States prepares to widen secondary sanctions against Iran.
At the time of writing, the pair trades around 159.13, recovering from an intraday low of 158.55
Hawkish Bank of Japan (BoJ) expectations are offering limited support to the Yen, with fiscal concerns still dominating sentiment. The BoJ is widely expected to raise interest rates in September. Recent inflation figures have only reinforced the case for higher rates.
According to strategists at Scotiabank, the prevailing story in USD/JPY is evolving as the immediate anxiety over potential Japan intervention begins to fade. They note that “the market narrative appears to be shifting from the official intervention that dominated through much of the summer,” with participants now “tightening their focus on fundamentals into the September 18 BoJ meeting.” In Scotiabank’s view, the key issue is not a specific policy move but communication, as “greater risk lies with the central bank’s tone as policymakers manage expectations for the rate path into year-end and into early 2027.” Meanwhile, the US Dollar is showing signs of stabilization after coming under heavy selling pressure following the US Treasury’s decision to expand liquidity-support buybacks for longer-dated government bonds. The move revived the currency debasement theme as investors grew more concerned about the US fiscal outlook and rising government debt, pushing the Greenback to three-month lows.