Japanese Yen seems vulnerable near one-month low vs USD amid US-Japan rate gap, Iran risks

The USD/JPY pair opens the week near the 160.00 psychological level, slightly below its one-month high set on Friday. The fundamental outlook appears favorable for bullish traders, indicating that the general trend for the currency pair may continue to move upward. Japan's economic situation appears challenging, with concerns over public finances and expansionary fiscal policies potentially contributing to the yen's relative underperformance.

However, US Treasury Secretary Scott Bessent stated on Sunday that the recent JPY movement seems contained, reducing the likelihood of a joint Japan-US intervention. Moreover, Japan's borrowing costs remain notably lower than those of other major economies, including the United States, which sustains the carry trade and benefits the USD/JPY pair.

The Bank of Japan (BoJ) raised its short-term policy rate to 1.00% in June, marking the highest level in 31 years, and analysts predict an 80% chance of another rate hike in September. In contrast, the Federal Reserve's benchmark rate ranges between 3.5% and 3.75%. Fed Chair Kevin Warsh's comments at the Jackson Hole Symposium further bolster expectations of a September rate hike, increasing the rate gap between the Fed and the BoJ to around 250-275 basis points and favoring JPY bears.

The heightened geopolitical risk from the recent US strikes on Iran also supports the USD, as the safe-haven currency continues its strong performance. The USD/JPY pair currently consolidates just below the 200-period Simple Moving Average (SMA), suggesting a neutral near-term bias, with bulls struggling to maintain their recent gains.

The currency pair holds above the 100-period SMA at 159.12 and the 50.0% Fibonacci retracement level at 159.61, which indicates a constructive overall trend while the broader upswing from the 23.6% retracement level at 157.31 remains intact. Key resistance levels on the upside include the 200-period SMA at 160.34, the 61.8% Fibonacci retracement at 160.64, and the 78.6% level at 162.10.

Conversely, support is provided by the 50.0% retracement at 159.61, followed by the 100-period SMA at 159.12. A deeper decline could expose the 38.2% retracement at 158.58 and the 23.6% level at 157.31 as additional support points.