The Japanese Yen (JPY) edged lower against the US Dollar (USD) during Asian trading on Thursday, though downside momentum remains limited as investors continue to bet on a Bank of Japan (BoJ) rate hike later this month. Market participants expect the BoJ to move ahead with policy normalization in October, contrasting sharply with expectations for two additional rate cuts by the US Federal Reserve (Fed) this year. The narrowing US-Japan rate differential could support the JPY despite short-term safe-haven flows fading.
Safe-haven demand eases as risk appetite improves
Receding concerns over the partial US government shutdown have kept broader risk sentiment positive, undermining the yen’s appeal as a safe haven. US government agencies began shutting down after President Donald Trump’s Republican Party failed to reach a spending agreement with Democrats, but investors remain relatively unfazed, viewing the economic impact as limited.
Wall Street posted a fourth consecutive day of gains, with the optimism spilling over into Asian equities on Thursday. This upbeat tone weighed on the JPY, capping its recent strength against the dollar.
BoJ outlook contrasts with dovish fed
The Summary of Opinions from the BoJ’s September meeting revealed discussions over a potential rate increase, with markets now pricing in a 25-basis-point hike later this month. Japan’s political landscape also comes into focus with the Liberal Democratic Party leadership election on October 4, which could shape fiscal policy and indirectly influence the BoJ’s stance.
In contrast, Fed expectations remain dovish. According to the CME FedWatch Tool, markets have fully priced in a rate cut in October and see a roughly 90% chance of another reduction in December. Bets have strengthened after Wednesday’s ADP report showed US private-sector jobs fell by 32,000 in September—the largest decline since March 2023—while August figures were revised lower to show a 3,000 loss instead of growth.
Meanwhile, the ISM manufacturing PMI improved slightly to 49.1 in September from 48.7 but still signaled contraction for a seventh straight month. The partial US government shutdown is also expected to delay key macro releases, including Thursday’s weekly jobless claims and Friday’s Nonfarm Payrolls (NFP), leaving the USD dependent on FOMC commentary for direction.
USD/JPY technical outlook: bias remains tilted lower
From a technical perspective, the break below 147.00 overnight has reinforced bearish sentiment in USD/JPY. Daily oscillators are turning negative, suggesting further downside. A decisive move under the 100-day Simple Moving Average (SMA), around 146.50, could pave the way for a drop toward 146.00, followed by the September swing low near 145.50–145.45, and ultimately the 145.00 psychological level.
On the upside, immediate resistance lies at 147.30, with stronger selling interest expected near 148.00 and capped around the 200-day SMA at 148.35. A sustained breakout above this zone could trigger short-covering toward 149.00, with further gains extending to 149.40 before another test of the 150.00 psychological barrier.
