The USD/JPY pair edged higher to around 160.20 during the Asian session on Tuesday, extending its gains for a seventh consecutive trading day.
Escalating tensions in the Middle East have bolstered the safe-haven US dollar, while robust US employment data has further solidified market expectations for a Federal Reserve interest rate hike, providing additional support for the greenback. However, Japanese authorities have once again issued strong intervention warnings, stating they are prepared to take decisive action to curb excessive weakness in their currency, which is limiting the upside for USD/JPY.
Fed Rate Hike Expectations Gain Traction, Bolstering the Dollar
The US economy posted a third consecutive month of strong job growth in May. Data from the Bureau of Labor Statistics showed non-farm payrolls increased by 172,000, with the prior month's figure revised up from 115,000 to 179,000, significantly exceeding market expectations of 85,000. The unemployment rate held steady at 4.3%, in line with forecasts. This report sends a clear signal: despite persistently high energy prices and the prolonged closure of the Strait of Hormuz, the US labor market shows no substantial signs of weakness. The breadth of job growth also improved, with robust gains recorded in the services, manufacturing, and construction sectors.
Following the strong US jobs data, traders increased their bets on a Fed rate hike, supporting the dollar. According to the CME FedWatch Tool, the market is currently pricing in a 43% probability of a 25-basis-point rate hike in December, significantly higher than the roughly 14% probability seen a month ago. This shift reflects a market repricing of the Fed's policy path—from a mainstream expectation of steady rates or even cuts this year just weeks ago to a changed outlook based on the strong employment figures. The ongoing escalation of geopolitical tensions in the Middle East has further boosted the safe-haven US dollar, pushing USD/JPY higher.
Japanese Authorities Issue Intervention Warnings
In response to the yen's persistent weakness, Japanese authorities have again issued firm verbal warnings. On Tuesday, Finance Minister Shunichi Suzuki explicitly stated that the government's stance remains unchanged and that authorities are fully prepared to take decisive and appropriate action to protect the domestic currency and prevent negative impacts on the economy and livelihoods from excessive exchange rate volatility. This statement quickly drew market attention, with investors' expectations of potential intervention by Japanese authorities rising somewhat, thereby creating some resistance to further USD/JPY gains. Looking back to late April and early May, Japanese authorities conducted multiple actual intervention operations, buying yen and selling dollars on a large scale. At that time, USD/JPY had briefly breached the 160 level, reaching multi-decade highs. Following several days of forceful intervention by Japan's Ministry of Finance, the pair quickly retreated, falling to around 155 at its lowest point—a drop of over 500 pips. While the intervention did not completely reverse the yen's weak trend, it successfully slowed the pace of depreciation and injected uncertainty into the market, making investors wary of excessively betting on yen weakness above the 160 level. However, with rising US Treasury yields and increasing Fed rate hike expectations recently, the yen has weakened again, and USD/JPY has quietly returned to the 160 level. The market is now closely watching to see if Japanese authorities will intervene again. The environment is more complex compared to the previous intervention: on one hand, expectations for Fed rate hikes are stronger than before, solidifying the logic for dollar strength; on the other hand, while Middle East tensions have temporarily eased, long-term uncertainties persist, and safe-haven flows still tend to favor the dollar. Suzuki's verbal warnings can be seen as a conventional step of "courtesy before action." If USD/JPY quickly breaks above 161 or even 162 following the CPI data release, Japanese authorities are likely to intervene again, potentially during periods of lower holiday liquidity.
Market Focus Shifts to US Inflation Data
This week, market attention will center on Wednesday's release of the US Consumer Price Index (CPI) data for May, which will be a key variable influencing the short-term direction of USD/JPY. Following the significantly stronger-than-expected non-farm payrolls data for May, market expectations for the Fed's policy path have undergone a fundamental shift—from "rate cuts this year" just weeks ago to "at least one rate hike before year-end." The CPI data will serve as a "litmus test" to validate this logic. Economists generally expect the headline CPI year-on-year to rise to 4.2% in May, the highest level in over three years, with a month-on-month increase of about 0.5%. The core CPI, excluding food and energy, is forecast to hold around 2.9% year-on-year, with a 0.3% month-on-month rise. If the inflation data continues to rise, it will further solidify market expectations for Fed rate hikes. Currently, the CME FedWatch Tool shows the probability of a 25-basis-point hike in December has climbed to 43%, well above the 14% seen a month ago. If CPI exceeds expectations, this probability is likely to move above 50%. This would push the US Dollar Index to break through the current resistance zone around 100.20, and USD/JPY could consolidate above the 160 level and advance further, testing the 161 or even 162 areas.
Conversely, if inflation unexpectedly softens—for example, if headline CPI year-on-year falls below 4.0% or core CPI month-on-month comes in below 0.2%—it could prompt investors to dial back their recent hawkish pricing. In that scenario, market expectations for Fed rate hikes might loosen, with the December hike probability potentially falling back below 30%. This would provide some breathing room for the yen, and USD/JPY could retrace part of its recent gains, pulling back towards the 159 or even 158 areas. Additionally, the threat of intervention by Japanese authorities remains a significant factor influencing the pair. If USD/JPY quickly breaks above 161 due to stronger-than-expected inflation, Japan's Ministry of Finance might intervene again by selling dollars and buying yen to curb excessive appreciation.
Technical Outlook: USD/JPY Maintains Strong Uptrend on Daily Chart
The daily chart shows the USD/JPY pair maintaining a strong upward trajectory, with the bullish structure remaining intact.
In terms of price action, the current exchange rate is around 160.20, trading above all moving average systems. The MA20, MA50, MA100, and MA200 are aligned in a bullish formation, providing robust support for the price. Immediate resistance lies at 160.47, while support levels are seen at the MA20 (159.31), the previous consolidation platform, and the 158.94 area.
Technical indicators are predominantly bullish: the MACD indicator shows the DIFF and DEA lines formed a golden cross above the zero line and continue to rise, with the red histogram expanding gradually, indicating ongoing bullish momentum. The RSI indicator is at 63.40, not yet entering severely overbought territory, suggesting room for further upward movement.
Overall, the price is within a clear upward channel, supported by the bullish moving average alignment and confirming indicator signals. The USD/JPY pair is poised to continue its short-term strength. However, as it approaches previous highs, caution is warranted for potential short-term profit-taking that could trigger a pullback.
As of 11:31 Beijing Time, USD/JPY was quoted at 160.22/23.
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