Today’s Market Outlook USD/JPY Remains Resilient After Rate-Check Reports Focus on the Move Following the 157 New York

Today’s Market Outlook

USD/JPY Remains Resilient After Rate-Check Reports
Focus on the Move Following the 157 New York Cut

Market Overview

The key question in overseas markets at the start of the week is whether dollar-buying and yen-selling pressure will persist despite rate-check reports late last week.

USD/JPY rose towards 158 late last week before falling sharply below 157. Markets widely speculated that the government and the Bank of Japan had carried out a rate check by contacting financial institutions for exchange-rate quotations.

However, USD/JPY fell to around 156.58 at the start of the week before rebounding to around 157.31 in the London session. The pair is trading above last Friday’s New York close of 156.88, confirming strong buying on dips despite continued caution towards Japanese authorities.

Lower oil prices and falling US Treasury yields are supporting European and US equities, adding risk-on yen selling to the market. The key focus now is whether USD/JPY can resume its advance towards 158 after today’s large option expiry at 157.00.

Why Yen Weakness Is Continuing After Rate-Check Reports

The sharp decline late last week clearly increased caution over potential FX intervention by the government and the BOJ.

Nevertheless, USD/JPY has recovered into the 157 range for several reasons:

• The hawkish policy outlook following the US FOMC
• A wide US-Japan yield differential remains even after the BOJ rate hike
• The timing of the BOJ’s next rate hike remains unclear
• Risk-on yen selling driven by rising equities
• Strong buying on dips during USD/JPY pullbacks
• Reduced liquidity due to Japanese public holidays

A rate check differs from actual FX intervention because it does not involve direct transactions in the market.

However, it is generally seen as a warning that authorities may be moving closer to direct intervention. As a result, markets are likely to be cautious about chasing USD/JPY higher in the upper 157 range and near 158.

USD/JPY

USD/JPY rose from a low near 156.58 to 157.31 in early London trading.

In the short term, 157.00 is the key central level. A US$2.5 billion option expires at 157.00 at today’s New York cut, which may keep the pair drawn towards that level until the expiry at 15:00 London time.

On the upside, the first focus is whether the pair can break clearly above 157.30. A sustained break would bring 157.50, 157.80 and last Friday’s high near 158.00 into focus.

However, as USD/JPY approaches 158, concern over another rate check, verbal warnings against yen weakness and direct intervention is likely to intensify.

On the downside, 157.00 and then 156.58 are the key support levels. A break below 156.58 would open room for a correction towards the low 156 range and then the upper 155 range.

New York Cut Options

Large option expiries are set in major currency pairs today:

• USD/JPY: US$2.5 billion at 157.00
• EUR/USD: €1.1 billion at 1.1470

Until the expiry, USD/JPY may be drawn towards 157.00 and EUR/USD towards 1.1470, potentially limiting price volatility.

The key period will be after the expiry at 15:00 London time.

If USD/JPY resumes rising while remaining in the 157 range after option-related defence flows have ended, it would confirm underlying strength in dollar buying and yen selling.

Conversely, if the pair falls below 157 after the expiry, markets may see this as a retreat in dollar buying due to renewed caution over last Friday’s rate-check reports.

The Yen and Equity Markets

In early London trading, European equities and US equity futures are firm, while yen selling is dominant.

Lower oil prices and falling US Treasury yields are easing concerns about corporate cost pressures and tighter financial conditions, supporting equities.

This is producing the following sequence:

Higher equities
↓
Improved investor risk appetite
↓
Renewed yen carry trades
↓
Rising USD/JPY and cross-yen pairs

However, as US yields are declining while equities are rising, the advance in USD/JPY is being driven more by yen selling than by broad-based dollar strength.

Cross-Yen Pairs

Cross-yen pairs are also rising on yen selling.

EUR/JPY has climbed from around 179.73 to 180.59, while GBP/JPY has advanced from around 209.31 to 210.77.

With EUR/USD and GBP/USD showing relatively limited movement, the gains in cross-yen pairs are clearly being led by yen weakness.

If equities remain firm, EUR/JPY may retest 181 and GBP/JPY may move back towards 211.

Conversely, if USD/JPY falls sharply on renewed rate-check concerns, yen buying could be amplified in the cross-yen pairs.

EUR/USD and GBP/USD

EUR/USD and GBP/USD are edging lower, indicating modest dollar strength.

EUR/USD has a €1.1 billion option expiry at 1.1470, which is likely to keep the pair centred around that level until 15:00 London time.

A move below 1.1470 after the expiry would bring 1.1450 and then 1.1400 into focus.

Conversely, if falling US yields allow EUR/USD to move back above 1.1470, a rebound towards 1.1500 could follow.

GBP/USD also remains vulnerable to selling on rallies, reflecting post-BOE weakness in sterling and the hawkish US monetary-policy outlook.

Middle East Developments and Oil

Over the weekend, Iran-aligned Houthi forces were reported to have attacked Riyadh, the capital of Saudi Arabia.

Rising geopolitical risk normally supports safe-haven dollar buying, but oil prices have softened after their earlier advance.

US Central Command has said that oil flows are improving, easing supply concerns somewhat.

If oil prices continue to decline, this is likely to lead to:

• Easing global inflation concerns
• Less upward pressure on long-term US yields
• Support for equity markets
• Risk-on yen selling

Lower oil prices therefore act as a dollar-negative factor while also supporting yen selling through stronger equities. For USD/JPY, the key question is whether risk-on yen selling outweighs the effect of lower US yields.

US Central Bank Speakers

Chicago Fed President Goolsbee is scheduled to speak today.

The latest FOMC delivered a hawkish message, so markets will be watching whether President Goolsbee again stresses the need for further rate hikes and vigilance on inflation.

A hawkish message could lift US yields and strengthen dollar buying, making a renewed test of 158 more likely in USD/JPY.

Conversely, if he adopts a cautious stance due to falling oil prices or downside economic risks, US yields may decline and the recent dollar rally could correct.

Remarks from Bank of Canada Governor Macklem may affect the Canadian dollar through his views on US tariff issues, the Canadian economy and the future direction of monetary policy.

US Midterm Elections

Ahead of the US midterm elections on 3 November, opinion polls show the Democratic Party holding a slight advantage.

Democrats are leading narrowly in several closely contested Senate races, while the party also appears more likely to secure a near-majority in the House of Representatives.

If Democrats win both chambers, markets may expect tighter constraints on the Trump administration’s aggressive approach to tariffs, fiscal spending and Middle East policy.

Potential market implications include:

• Lower long-term US yields on expectations of less fiscal expansion
• Support for equities on hopes of more restrained tariff policies
• Policy gridlock caused by divided government
• A loss of political momentum for the Trump administration

However, many states remain closely contested, and support ratings could shift before the election depending on developments in the Middle East, oil prices, inflation and the economy. This should be viewed less as an immediate FX driver and more as a political factor that could shape the medium-term direction of US yields and the dollar.

Today’s Economic Calendar and Events

• Turkey September capacity utilisation
• Hong Kong second-quarter current account
• Bundesbank monthly report
• Speech by Chicago Fed President Goolsbee
• Speech by Bank of Canada Governor Macklem
• Large USD/JPY New York cut at 157.00
• Large EUR/USD New York cut at 1.1470

With few high-impact economic releases scheduled, option-related flows, oil, equities, US yields and comments from policymakers are likely to drive the market.

Key Focuses for Overseas Markets

① Whether USD/JPY rises after the 157.00 New York cut
② Whether it breaks above 157.30 and retests 158
③ Whether the government or BOJ issues fresh warnings against yen weakness
④ Whether concern over direct intervention strengthens following the rate check
⑤ Whether lower oil prices continue to support European and US equities
⑥ Whether long-term US yields continue to decline or rebound
⑦ Whether President Goolsbee endorses the FOMC’s hawkish stance
⑧ Whether EUR/USD establishes direction after the 1.1470 expiry
⑨ Whether new negative headlines emerge from the Middle East
⑩ Whether US midterm-election polling affects US yields or equity markets

Potential Scenarios

USD/JPY Upside Scenario

If buying strengthens after the 157.00 option expiry and US yields rebound, USD/JPY could rise towards 157.50 and 158.00. However, the area around 158 is likely to be unstable due to rate-check and intervention concerns.

Range Scenario Around 157

If declining US yields cap the dollar while equity-market strength supports yen selling, USD/JPY could remain in a range of roughly 156.80–157.50.

Yen-Strength Correction Scenario

If dollar buying does not continue after the 157 expiry and warnings against yen weakness or falling equities emerge, USD/JPY may retest 156.58. A break below that level would bring the low 156 range and upper 155 range into view.

Dollar-Strength and Yen-Strength Scenario

If Middle East tensions worsen again, safe-haven dollar buying and risk-off yen buying could strengthen simultaneously. In this case, EUR/USD and GBP/USD are likely to decline, while USD/JPY may become directionally unstable.

Summary

Rate-check reports late last week sent USD/JPY sharply lower from near 158 into the 156 range, but the pair has recovered into the 157 range at the start of the week, confirming resilient buying on dips.

Lower oil prices and falling US yields are limiting broad dollar strength, but risk-on yen selling through stronger equities is supporting USD/JPY and cross-yen pairs.

Large New York-cut options are set at 157.00 in USD/JPY and 1.1470 in EUR/USD today. Price action may be constrained until the 15:00 London-time expiry, after which the key question will be whether dollar buying resumes.

If USD/JPY moves back towards 158, caution should increase over another rate check, official warnings against excessive yen weakness and the risk of direct intervention.