## The Bank of Japan's Rate Hike Suspense Becomes a Yen Short Squeeze Driver, USD/JPY Hovering Near Key Support

**Policy Uncertainty Weighs on the Yen, Dollar Gains Momentum**

On Monday during Asian trading hours, the yen (JPY) remained under pressure, approaching the nine-month lows set last week. The USD/JPY currency pair remained steady around 154.00, while other emerging market currencies globally—such as the Indian Rupee against the US dollar—also showed weakness. This round of yen depreciation is not an isolated phenomenon but reflects the market’s reassessment of the Bank of Japan’s rate hike prospects.

Weak economic data from Japan’s third quarter further reinforced this outlook adjustment. The government announced last week that Japan’s GDP contracted by 0.4% quarter-on-quarter from July to September, marking the first decline in six quarters; year-on-year, it fell by 1.8%, contrasting sharply with the 2.3% growth in the previous quarter. Although the decline was less severe than the most pessimistic market expectations, this data was enough to prompt the market to reevaluate the BOJ’s policy space under current conditions.

**Economic Weakness Sparks Fiscal Support Expectations, Rate Hike Bets Significantly Retreat**

Prime Minister Fumio Kishida’s government is preparing a new round of fiscal stimulus aimed at offsetting rising living costs. She recently stated that the government would reset its fiscal target framework to pave the way for flexible spending over the coming years. This policy signal directly hits the market’s rate hike expectations—investors are reducing bets on the BOJ raising interest rates soon, and this retreat in expectations is exerting direct pressure on the yen.

Meanwhile, geopolitical tensions are also simmering beneath the surface. After Kishida’s comments on the Taiwan conflict, both China and Japan issued stern warnings, increasing regional geopolitical risks. Ironically, this uncertainty has provided a slight support for safe-haven flows into the yen, offsetting some depreciation pressures.

**Verbal Interventions and Import Inflation Concerns Double-Restrict Yen Short Positions**

Japanese officials, sensing depreciation pressures, have begun to act. Finance Minister Shunichi Suzuki warned of foreign exchange market movements last week, while Economy Minister Shigeki Kihara warned that yen depreciation could push up import costs and consumer prices (CPI). These statements effectively serve as signals of potential policy intervention, restraining further aggressive yen short bets.

On the other hand, the US dollar is also facing growth headwinds. Increasingly, Federal Reserve policymakers have adopted a cautious stance, and market expectations for a December rate cut have significantly diminished, providing strong support for the dollar. However, it’s worth noting that the US faces the risk of the longest government shutdown in history, which could limit the dollar’s rally amid economic uncertainty.

**Technical Outlook: USD/JPY Break Above 155 Targets Bullish Momentum**

From a technical perspective, the yen’s rebound from the 153.60 support level (corresponding to the 100-period simple moving average on the 4-hour chart) on Friday was robust, closing above the resistance zone of 154.45-154.50, boosting confidence among bulls. The oscillators on the daily chart remain in positive territory, well away from overbought levels, leaving room for further gains.

If the pair can hold above the 155.00 psychological level and attract new buying interest, it will further strengthen the bullish signal, pushing the price toward the 155.60-155.65 resistance zone, with an ultimate target of 156.00 round figure. In contrast, if the price breaks below 154.00 support directly, it may find support around 153.60-153.50, but a break below the 153.00 round figure would signal a short-term trend reversal, potentially sending USD/JPY down toward the 152.15-152.10 support area. Market participants should closely watch Thursday’s US non-farm payroll report, FOMC minutes, and officials’ speeches, as these data points will provide new directional cues for the dollar.