The Japanese Yen (JPY) held steady against a modestly rebounding US Dollar (USD) on Wednesday, trading near its strongest level since late July. Market participants remain cautious ahead of two pivotal central bank decisions: the Federal Reserve’s policy announcement later today and the Bank of Japan’s (BoJ) two-day meeting beginning Thursday. The outcomes are set to define the near-term trajectory of the USD/JPY pair.
Expectations that the BoJ will maintain its gradual path toward policy normalization, coupled with a cautious market mood, continue to lend support to the safe-haven JPY. At the same time, narrowing US-Japan yield differentials amid rising bets on aggressive Fed easing are also limiting downside pressure. However, a modest USD bounce from multi-month lows is keeping USD/JPY underpinned in the short term.
Yen traders cautious ahead of central bank events
Japan’s Ministry of Finance reported on Wednesday that the nation’s trade deficit widened to ¥242.5 billion in August, up from ¥118.4 billion in July but far smaller than the ¥513.6 billion expected. Exports declined only 0.1% year-on-year, a softer drop than forecast, while imports fell 5.2%, highlighting still-weak domestic demand.
Meanwhile, political uncertainty resurfaced after Prime Minister Shigeru Ishiba announced his resignation, potentially complicating the BoJ’s decision-making process. Markets expect the central bank to hold rates steady at 0.5% this week, though many investors remain convinced that another hike will come before year-end.
In contrast, the Fed is widely expected to cut rates by 25 basis points today, with traders pricing in the likelihood of two additional reductions this year as the labor market softens. Recent USD weakness drove USD/JPY to the 146.20 zone earlier in the Asian session, but investors appear reluctant to add fresh positions until after the FOMC outcome.
Geopolitical risks remain elevated
Geopolitical tensions are adding to safe-haven demand for the JPY. US President Donald Trump has urged Ukraine to strike a deal to end its conflict with Russia, even as Russian forces intensified attacks on Zaporizhzhia. Meanwhile, Israel has launched a long-planned ground offensive in Gaza City, escalating a conflict already drawing international condemnation.
Technical outlook: USD/JPY consolidates near 146.20
Technically, Tuesday’s decisive drop below 147.00 has reinforced the bearish bias, with momentum indicators turning negative on the daily chart. Key support lies near 146.20, coinciding with the 100-day Simple Moving Average (SMA). A break below this zone and the 146.00 handle would open the way toward 145.35 and the psychological 145.00 level.
On the upside, initial resistance is seen at 146.70, followed by 147.00. Sustained strength above 147.20 could trigger a recovery toward 147.55 and eventually the 148.00 mark. A move past the 200-day SMA at 148.75 would expose the 149.00–149.15 region, shifting momentum back in favor of the bulls.
