Yen Under Siege — The Bearish Momentum is Far from Over

The Japanese yen has extended its losing streak into late October, with weakness deepening as of 21 October. Market participants are no longer asking if the yen will weaken, but how far this slide can go.

USD/JPY has been charging higher, breaking resistance levels almost effortlessly. The recent price action reflects relentless selling pressure, fueled by widening yield differentials and fading safe-haven demand. The yen is being systematically sold into strength, a clear sign that bearish sentiment remains firmly in control. What was once a “safe haven” currency is now the market’s favourite short.

1. BoJ Policy Outlook — Tightening Talks, But Uncertainty Reigns

While there are growing market whispers that the Bank of Japan may consider gradual tightening or at least tweak its yield curve control in coming months, traders are far from convinced.

Uncertainty around the actual timing and scale of any policy shift has kept the yen under heavy pressure. The BoJ remains the most dovish central bank in the G7, and as long as this stance lags behind the Fed and other peers, the yield gap is likely to continue fueling capital outflows.

In short — the market is pricing in hesitation, not conviction. And that’s a dangerous backdrop for yen bulls.

2. Japan Political Landscape — Dovish Leadership Adds More Weight

Japan’s political shift has also turned into an unexpected headwind for the yen. The newly appointed prime minister is seen as a fiscal dove, favoring aggressive spending to support domestic demand.

While this could give the economy a short-term boost, it’s also a clear negative for the yen. A government committed to stimulus spending, paired with a central bank hesitant to tighten, is a perfect recipe for continued currency weakness. Traders are well aware of this — and the positioning reflects it.

3. Japanese Yen – Riding the Short Momentum

The yen’s weakness isn’t just a technical story — it’s a macro, policy, and political alignment that all point in one direction. And right now, the tide is still going out fast.

For traders, the core drivers behind the yen’s sustained bearish momentum center around three powerful forces:

Yield Gap Fueling the Fire: The widening yield differential between Japan and major economies like the U.S. continues to accelerate capital outflows from the yen. With the Bank of Japan anchoring rates near zero while others hold significantly higher yields, the yen remains the funding currency of choice. This environment intensifies downward pressure as global investors chase carry opportunities elsewhere.

Policy Paralysis: “All Talk, No Action”. Despite growing speculation about policy tweaks, the BoJ has delivered more rhetoric than real tightening. The absence of clear guidance or decisive moves has left investors skeptical of any near-term shift. This clouded outlook creates a vacuum for speculative selling, as markets increasingly price in prolonged policy inertia and persistent yield divergence.

Dovish Politics: Japan’s new leadership under Sanae Takaichi signals a dovish fiscal stance, with aggressive spending expected to stimulate domestic growth. While supportive for the economy in the short run, this stance adds more weight on the yen, especially when paired with ultra-loose monetary policy. Traders see this fiscal–monetary mix as fundamentally bearish for the currency.

For the bottom line, yield dynamics, policy uncertainty, and dovish political leadership are working in the same direction — against the yen. Until one of these forces meaningfully shifts, the short momentum remains intact, and traders are more inclined to ride the wave than fight the tide.

4. Yen Weakness Far from Over

In summary, the Yen weakness is still far from over as this seem to be just the beginning. The yen’s weakness is more than a macro story — it’s a momentum trade in full motion. Traders are increasingly positioning to ride this trend rather than fade it, as technical signals continue to align with the bearish macro backdrop.

Professional Advice: Long Bulls Above 150.00

USD/JPY has decisively broken above the psychological 150.00 level, turning what was once major resistance into a new layer of support. This breakout has emboldened momentum traders, drawing in both real money and speculative flows. As long as price holds above 150.00, the bullish structure remains intact.

USDJPY, Daily Chart

USD/JPY has decisively broken above the psychological 150.00 level, turning what was once major resistance into a new layer of support. This breakout has emboldened momentum traders, drawing in both real money and speculative flows. As long as price holds above 150.00, the bullish structure remains intact.

The clean break above has open up all the way up for USDJPY toward the key level of 158.00 – 160.00, a one-year high level. Traders continue to favor long USD/JPY or short JPY against yield-rich currencies like USD and GBP.

Here are two major scenarios likely to develop into the end of 2025:

1. Bull Run Toward 160: If the yield gap stays wide and the Bank of Japan remains far from tightening, USD/JPY could grind steadily higher toward 158–160, with limited resistance ahead. A sustained breakout above 155.00 may trigger a wave of momentum buying.

2. Remain Consolidated above 150.00: Should the market stabilize without a new catalyst, USD/JPY may remain in a broad consolidation zone between 150.00 and 158.00, with dip-buying dominating pullbacks. In this scenario, traders are likely to accumulate positions on retracements, maintaining a bullish bias as long as the 150.00 support level holds firm.

What Could Reverse This Trend?

While the outlook remains bearish for the yen, traders should be mindful of potential reversal catalysts:

• Intervention Shock: A sudden verbal or direct FX intervention by Japanese authorities could spark a sharp but temporary pullback. However, without credible policy action, such moves are likely to fade quickly, turning into buy-on-dip opportunities for trend followers.
• Policy Shift Risk: A genuine tightening signal or yield curve control adjustment from the BoJ could pause or partially unwind yen weakness. Even so, downside for USD/JPY may remain limited initially due to strong carry and entrenched long positioning.
• Political Disappointment: If market optimism surrounding Sanae Takaichi fades and expected fiscal stimulus fails to materialize, bullish momentum may lose some fuel, increasing the likelihood of range-bound price action rather than an extended rally.

5. Conclusion — A Trend Not to Be Ignored

The yen’s weakness is not a short-lived fluctuation — it’s a structural story powered by policy divergence, political dynamics, and strong market momentum. As long as the Bank of Japan stays behind the global tightening curve and fiscal policy remains dovish, the path of least resistance for USD/JPY is still higher.

With the 150.00 level now firmly acting as a technical floor, traders are increasingly inclined to buy dips and ride the uptrend, eyeing 158.00–160.00 as the next major target zone.

While potential reversal risks exist — such as intervention shocks or an unexpected policy pivot — these remain secondary narratives compared to the dominant macro forces currently at play.

Bottom line: Unless Tokyo delivers a decisive policy surprise, the yen’s bearish momentum is likely to extend well into 2025, making USD/JPY one of the most compelling macro trend trades in the market today.