Mixed Central Bank Signals Keep USD/JPY Hovering Near 156.50, With EUR/JPY in View

The Dollar-Yen pair holds steady around 156.50 as investors digest conflicting monetary policy cues from US and Japanese authorities. The currency pair entered Monday’s Asian trading session on a cautious note, as traders navigate between softer Fed rhetoric and mounting Japanese intervention warnings. This backdrop creates an intriguing setup for those tracking related pairs like EUR/JPY.

Fed’s Cautious Messaging Supports USD, But Questions Remain

The Federal Reserve’s recent communications have turned more dovish than markets anticipated just weeks ago. Boston Fed head Susan Collins indicated that current policy rates are appropriately calibrated, while her Dallas counterpart Lorie Logan suggested the central bank should pause its tightening cycle to better assess economic outcomes. These comments have provided some underpinning for the Greenback against the Yen.

Yet the picture remains muddled. October’s Fed meeting minutes hinted that many policymakers favor holding steady through December, contradicting earlier expectations for additional cuts. This internal division keeps traders guessing about the Fed’s true policy direction for the remainder of 2025.

Japan’s Verbal Firewall: A Growing Headwind for USD/JPY

Japanese officials are signaling increased readiness to intervene in currency markets. Finance Minister Satsuki Katayama explicitly warned on Friday that the authorities stand ready to take action against “excessively volatile and speculative” moves in the Yen. Such rhetoric typically precedes actual intervention and represents a significant cap on USD/JPY upside.

The Bank of Japan maintained its overnight rate at 0.5% through January, but Governor Kazuo Ueda has hinted strongly at a policy shift in December or early 2026. Market consensus expects a potential rate increase to 0.75% in December, which would be the first tightening in the Japanese monetary cycle in years. An actual BoJ move would strengthen the Yen sharply and pressure USD/JPY lower.

What’s Next for the Pair—And EUR/JPY Implications

The immediate catalyst for USD/JPY will be Tuesday’s US Producer Price Index data, followed by broader inflation readings. Any sign of persistent price pressures could revive bets on Fed rate stability, supporting the Dollar.

However, the structural backdrop increasingly favors Yen appreciation. Japanese officials are no longer just talking—they’re preparing markets for potential rate hikes and ready to defend the currency through intervention. This dynamic is worth monitoring across the entire Yen cross spectrum, including EUR/JPY, which faces similar upside headwinds from a strengthening Yen.

Traders should remain positioned cautiously, watching for confirmation of either Fed dovishness or BoJ action before committing to directional bets on USD/JPY.