Currency Clash: Why Does the Dollar Dominate the Japanese Yen in November 2025?

The main question occupying traders’ minds regarding the USD/JPY currency pair revolves around a simple yet crucial factor: the yield differential. When U.S. bond yields exceed 4.15% while Japanese interest rates remain near zero, the choice becomes clear for international investors. This significant gap in returns reflects not just a numerical difference but the distinction between an investment yielding a real return and one barely surpassing inflation.

Why is USD/JPY still the preferred choice?

American economic data indicate that dollar-denominated assets continue to attract interest, especially amid global uncertainty. Foreign institutional investments in U.S. bonds reached approximately $1.45 trillion during the first nine months of 2025, a clear sign of investor confidence in American assets. In contrast, Japan recorded only $45 billion in foreign direct investments during the same period.

This massive flow of capital sustains demand for the dollar. Investors are not only seeking a safe haven but also an asset that offers attractive yields alongside stability. USD/JPY embodies this balance perfectly: a strong dollar supported by real yields, versus a yen suffering from low returns despite its reputation as a safe haven.

Bank of Japan: Waiting instead of acting

On the Japanese side, the Bank of Japan remains caught between opposing pressures. On one hand, core inflation readings show a slight increase to 2.9% in September 2025, prompting discussions about raising interest rates. On the other hand, nominal wages have risen by only 1.9%, and real wages after inflation have decreased by 1.4%, reflecting a weakness in domestic purchasing power.

This contradiction makes the central bank cautious and reserved. Any increase in interest rates could undermine economic growth rather than support it. Consequently, the bank continues to hesitate, maintaining near-zero rates and widening the gap with its American counterparts.

Impact of economic data on USD/JPY movement

Every American economic report can trigger sharp volatility. When inflation data (PCE) exceeds expectations, or U.S. consumption shows unexpected strength, expectations rise that U.S. interest rates will stay high longer than previously thought. This encourages investors to hold their assets in dollars longer, supporting the USD/JPY pair.

In Japan, any data indicating accelerated wage growth or rising employment rates could lead to reassessment of the Bank of Japan’s monetary policy prospects. However, so far, Japanese labor market data show only modest improvements insufficient to prompt decisive action from the bank.

Likely scenarios for USD/JPY movement

Scenario 1 - Continued dollar dominance:
If U.S. bond yields remain between 4.6% and 4.8%, and the Bank of Japan remains firm in resisting quick moves, USD/JPY could head toward 156-158 yen. This scenario depends on sustained international demand for U.S. assets and no major geopolitical crisis.

Scenario 2 - Sudden shift in Tokyo:
If Japanese data later show a noticeable acceleration in inflation or wages, the Bank of Japan may be forced to raise interest rates by 25 basis points or more. In this case, USD/JPY could decline from 154 to levels around 150-151 yen.

Scenario 3 - Decline in U.S. yields:
If the U.S. economy slows faster than expected, bond yields could drop sharply. In this case, the dollar might lose some appeal, but the yen would not benefit fully unless the Bank of Japan takes concrete steps.

When will the yen regain vitality?

The yen’s role as a safe haven remains limited currently, despite its historical status. During financial panic, the yen can rise by up to 7% against the dollar over short periods. However, these moves are usually short-lived, lasting no more than 5-7 days on average, especially when U.S. yields remain attractive.

Geopolitical crises, such as tensions in the Middle East or energy price shocks, may cause temporary inflows into the yen. But serious investors weigh these factors against available investment opportunities. As long as the dollar offers a higher real yield, the yen’s appeal as a safe haven remains limited.

Technical analysis: USD/JPY at a sensitive crossover

Currently trading near 154 yen, with strong resistance at 155 yen. Breaking this level could open the door to further gains toward 156-158 yen. On the downside, key support is at 152 yen, and a break below this could signal a broader correction toward 150 yen.

Momentum indicators show a slight bias in favor of buyers, but movements may be choppy depending on economic data developments. Daily charts indicate the pair is moving within a limited upward channel, meaning a true breakout may require a strong catalyst from upcoming data.

Conclusion: Waiting for the moment of truth

USD/JPY remains centered around a simple axis: the yield differential. As long as the dollar provides a clearly higher return, it will maintain its dominance. But any change—whether through Japanese rate hikes or a sharp decline in U.S. yields—could quickly reverse the trend.

Traders monitoring this pair should focus on three main indicators: U.S. inflation and personal spending data, Japanese wage and employment figures, and any signals from the Bank of Japan regarding potential policy changes. In the short term, trading is expected to stay between 152 and 156 yen, with the overall trend favoring the dollar unless major economic surprises occur.

Start trading USD/JPY today:

✓ Zero commission and low spreads
✓ Free virtual funds worth $50,000
✓ Free bonus of $100 for new clients

3 simple steps to get started:

1. Register - fill in your details
2. Deposit - through various secure methods
3. Trade - discover opportunities immediately