USD/JPY: Yen Hits 5-Week High at ¥156.10 as US Yields Slide, Japan Inflation Hits 2026 Peak

Demand for safety and falling US Treasury yields lift the Japanese currency. Firmer inflation also strengthens the case for another BOJ rate increase next week.

💴 Yen benefits from retreat in risk

• USD/JPY fell to a five-week low near ¥156.10 before recovering toward ¥156.90 early Friday. A falling pair means a strengthening yen: each dollar buys fewer Japanese currency units.
• Lower US yields weakened an important source of dollar support. The 10-year Treasury yield hovered around 4.95% after Thursday’s sharp bond rally.
• When returns on US debt decline, the dollar’s yield advantage becomes less compelling, particularly when investors are simultaneously reducing exposure to American technology stocks.
• The yen can also benefit when investors unwind carry trades. These involve borrowing in a lower-interest-rate currency to purchase higher-yielding assets elsewhere. Closing those positions can require buying back yen, potentially amplifying its gains.

🏦 Inflation keeps another BOJ hike in view

• Japan’s September core inflation accelerated to 2.1% from 1.7%, exceeding the BOJ’s target for the first time in nine months. This measure excludes fresh food but includes energy.
• The BOJ is expected to hold its policy rate at 1.25% on October 30, following September’s increase. December remains the next likely opportunity for a quarter-point rise to 1.5%.
• Traders should therefore examine the updated inflation forecasts and Governor Kazuo Ueda’s guidance alongside the headline decision.
• The dollar still has a substantial interest-rate advantage. The Fed’s target range is 3.75%–4%, and markets continue to price a high probability of another increase in December.
• Yen strength could face resistance if US yields rebound or the BOJ signals a slower tightening path than investors currently expect.

📊 Traders watch whether the breakdown holds

• The ¥156.10–¥156.25 area is the immediate downside reference. Sustained trading below that zone would strengthen the bearish case, with ¥155.50 and the psychological ¥155.00 level becoming the areas to monitor.
• A recovery faces potential resistance around ¥157.50 and ¥158.00, following the loss of those levels during the decline. Beyond them, recent peaks around ¥158.94–¥159.02 remain important.
• Oil remains a complication for Japan. Brent traded above $114 as Middle East supply concerns intensified. As an energy importer, Japan faces higher import costs when crude rises.
• Those pressures can challenge the yen even while global market anxiety encourages investors to seek its defensive qualities.