The Japanese Yen (JPY) started the week on a muted note, holding within the familiar range seen over the past month against the US Dollar (USD) as traders weigh mixed fundamentals. Uncertainty over the Bank of Japan’s (BoJ) policy path continues to act as a headwind for the Yen, while risk-on sentiment further undermines its safe-haven appeal.
Expectations that the BoJ will stay on course with gradual policy normalization contrast sharply with rising bets for aggressive easing by the US Federal Reserve (Fed). This divergence keeps the USD pinned near its lowest level since July 24, reached last Friday, and supports the lower-yielding JPY. Still, traders are hesitant to place large bets ahead of this week’s key FOMC and BoJ policy meetings.
Yen bulls cautious ahead of central bank events
Political uncertainty in Japan also weighs on sentiment. Prime Minister Shigeru Ishiba’s resignation earlier this month has clouded the outlook for government policy, potentially giving the BoJ reason to delay its next rate hike.
However, fundamentals remain supportive of eventual tightening. Japan’s Q2 GDP was revised higher, labor markets remain tight, and real wages rose for the first time in seven months—all bolstering the case for another hike this year.
On the geopolitical front, tensions remain elevated. The US and its Group of Seven allies discussed new sanctions on Russia and possible tariffs on nations enabling its war in Ukraine. Meanwhile, calls from an Iranian lawmaker for Qatar to expel US forces and host Iranian missiles ahead of an Arab-Islamic summit in Doha underscore regional risks, lending modest support to the Yen’s safe-haven status.
At the same time, the USD is weighed down by expectations of imminent Fed rate cuts. Markets widely anticipate easing at this week’s FOMC meeting, reinforcing JPY demand. Still, traders prefer caution until both central banks reveal their policy stances.
USD/JPY technical outlook signals downside risks
The USD/JPY pair continues to trade sideways, forming a rectangle pattern that highlights market indecision. Neutral oscillators also warn against aggressive positioning. That said, repeated failures near the 200-day Simple Moving Average (SMA) tilt risks to the downside.
A decisive break below 147.00 would confirm a bearish bias, exposing 146.30–146.20 support, followed by 146.00. A deeper slide could target 145.35 and eventually the 145.00 psychological level.
On the upside, immediate resistance is seen at 148.00. A sustained move higher could trigger short-covering toward the 200-day SMA around 148.75. A break above 149.00 and the monthly high near 149.15 would negate the bearish view and shift momentum back in favor of buyers.
