USD/JPY Price Forecast - Dollar to Yen Falls to 148.60 as U.S. Shutdown Risk and BoJ Hawkish Rhetoric Boost Yen

The USD/JPY pair extended losses into Monday, retreating to 148.60, down nearly 0.60% on the day, as political and macroeconomic pressure pulled the U.S. dollar lower. The sharp move reflects the combination of escalating U.S. government shutdown risks, dovish market expectations for further Federal Reserve easing, and hawkish commentary from the Bank of Japan (BoJ), which together have rebalanced flows in favor of the yen.

Government Shutdown Anxiety Weakens the Dollar

With just days remaining before the October 1 funding deadline, uncertainty around the U.S. government’s ability to avert a shutdown has shaken the dollar. President Trump summoned congressional leaders for last-minute negotiations, warning Democrats to “be reasonable” on a continuing resolution. Democrats, led by House Minority Leader Hakeem Jeffries, expressed willingness to compromise but rejected cuts to healthcare. Republicans argue the Senate must adopt the stopgap passed by the House. Traders are pricing a high likelihood of funding delays, an event that could shave growth forecasts and push the Fed toward a softer policy stance.

The shutdown risk has already reverberated in the broader FX market. The Dollar Index (DXY) fell to 97.63, down 0.19%, dragging USD lower against most majors. The dollar weakened 0.22% versus the euro (EUR/USD at 1.1725), 0.29% against the pound (GBP/USD at 1.3430), and 0.58% against the yen (USD/JPY at 148.60).

Fed Policy Outlook and Payrolls as Key Catalysts

Markets remain focused on whether the Fed will maintain its rate-cutting trajectory. The central bank reduced rates earlier this month to cushion slowing employment momentum. Last week’s PCE inflation report met expectations, showing no re-acceleration in price pressures, keeping bets alive for more cuts. However, the September nonfarm payrolls report (NFP) on Friday looms as the make-or-break event.

The correlation between USD/JPY and Fed fund futures pricing is running at -0.94, highlighting how closely the pair tracks U.S. policy expectations. A strong jobs print could pare back cut bets and push USD/JPY above 150.00, while a weak report would strengthen the yen further, possibly breaking support at 145.50 and testing 144.22 or even 143.45.

BoJ Hawkish Shift Adds to Yen Momentum

Adding to yen strength, BoJ board member Asahi Noguchi, historically dovish, signaled that the “need for a rate hike is increasing more than ever” as Japan edges toward its 2% inflation target. Rising wages and corporate price pass-throughs were cited as evidence of sustained inflationary pressure. With Japan’s core CPI near 3% and wage settlements hitting multi-decade highs, the BoJ may accelerate its exit from ultra-loose policy.

Speculation intensified after two BoJ members dissented in favor of a hike at the last policy meeting. Markets now see a growing probability of a move in October or early 2026. If confirmed, the policy divergence between the Fed and BoJ could deepen, providing further downside fuel for USD/JPY.