USD/JPY Price Forecast - Yen to Dollar Holds 155.40 As Yen Weakens On BoJ Policy

USD/JPY Price Extends Bullish Drive As BoJ Dovish Tone Collides With Strong U.S. Data

USD/JPY trades near 155.35, gaining ground for the third straight session as the Japanese Yen struggles to recover from its sharp depreciation. The pair has tested a ten-month high after breaking firmly above the 155.00 psychological level, with resistance seen between 155.50 and 156.00. This advance follows a clear divergence between the Federal Reserve’s restrained approach toward easing and Japan’s entrenched ultra-loose monetary stance. The yield spread between U.S. Treasuries and Japanese government bonds continues to hover near multi-decade highs—over 360 basis points—cementing the Dollar’s advantage as traders adjust positions before the release of delayed U.S. NFP and FOMC minutes.

Fed Caution And U.S. Data Reinforce Dollar Strength

The Dollar Index remains above 99.40, reflecting cautious optimism around U.S. resilience after stronger-than-expected manufacturing and construction data. The Empire State Manufacturing Index jumped to its highest level in a year, while August construction spending rose beyond forecasts, confirming robust activity despite the recent government shutdown. These figures cooled speculation of a December rate cut, which futures now price below 40%, compared to more than 60% earlier this month. Fed Governor Christopher Waller warned that accelerated AI adoption could soften labor demand, signaling that policy easing would depend on incoming data. Still, markets anticipate roughly 75 bps in total cuts by the end of 2026. Treasury yields remain elevated, with the 10-year holding near 4.46%, reinforcing the interest-rate gap favoring the Dollar against the Yen.

BoJ Reluctance And Fiscal Policy Pressure Undermine The Yen

The Bank of Japan continues to resist a full pivot toward tightening, even after inflation eased to 2.6% year-on-year and Q3 GDP contracted for the first time in six quarters. Prime Minister Sanae Takaichi reiterated her call for sustained low rates to safeguard growth, effectively constraining Governor Kazuo Ueda’s room for normalization. Fiscal plans to stimulate consumption via targeted tax cuts worth ¥1.5 trillion further strain Japan’s long-term fiscal balance, undermining Yen confidence. The Ministry of Finance’s verbal warnings about “one-sided” currency moves have done little to reverse sentiment, with traders doubting imminent intervention. Still, thin liquidity periods—especially during the Asian session—remain vulnerable to abrupt volatility if Tokyo steps in.

Technical Setup Shows Strong Bullish Bias For USD/JPY

The technical landscape highlights an entrenched uptrend. USD/JPY (155.35) remains above all key moving averages—15-day at 154.20, 20-day at 153.70, 50-day at 152.10—forming a steep ascending channel. Momentum oscillators confirm strength, with RSI at 66.4 still shy of the overbought threshold. The MACD histogram continues to widen, indicating sustained bullish momentum. A decisive close above 156.00 could expose the next resistance at 157.40, a level last tested during the 2022 yield-spread shock. On the downside, 154.50–154.45 acts as immediate support, followed by 153.60, where multiple EMAs converge. A break below 153.50 would suggest short-term exhaustion, but the broader structure remains intact as long as 153.00 holds.

Risk Appetite, Equity Volatility, And Cross-Currency Influence

Recent equity turbulence—driven by renewed AI bubble fears and profit-taking in tech heavyweights like NASDAQ:NVDA—has fueled risk-off sentiment without boosting the Yen, a sign of structural weakness in the safe-haven correlation. The S&P 500’s retreat below 6,707 and the Nikkei 225’s modest 0.8% rebound show that global investors are rebalancing rather than de-risking. Cross pairs amplify the trend: EUR/JPY trades near 179.50, while GBP/JPY holds above 204.80, both reinforcing Yen underperformance across the board. The lack of inflows into JGBs—despite U.S. volatility—underscores the carry-trade appeal of the Dollar, particularly as Japanese institutions continue funding overseas assets to offset negative real yields at home.

Macro Catalysts: NFP, FOMC Minutes, And Intervention Risk

Markets brace for the U.S. September Nonfarm Payrolls release on Thursday, the first major dataset since the government reopened. Analysts expect a slowdown from 170,000 to around 140,000, which could test Dollar momentum if labor weakness surfaces. The FOMC minutes, due Wednesday, may provide fresh insight into internal divisions over timing of cuts, but officials have consistently emphasized inflation persistence. Meanwhile, in Tokyo, Finance Minister Satsuki Katayama maintains that authorities will “monitor the market with high urgency,” though history suggests action only occurs if USD/JPY exceeds 156.50–157.00 with disorderly speed. Beyond that threshold, algorithmic and retail positioning could amplify volatility, making a short-term correction plausible before year-end.

Outlook: Uptrend Intact But Volatility Ahead

Combining macro divergence, strong technical momentum, and fragile Japanese fundamentals, the bias in USD/JPY remains clearly bullish. Short-term pullbacks toward 154.20 may serve as accumulation zones if risk appetite stabilizes. A confirmed daily close above 156.00 would target 157.40, potentially extending to 158.10 by December should U.S. data surprise to the upside and BoJ policy remain unchanged. Only a coordinated intervention or unexpected U.S. employment slump could reverse the medium-term structure. Based on the present evidence, USD/JPY remains a Buy on dips, supported by yield spreads, policy divergence, and sustained investor demand for Dollar carry positions.

That's TradingNEWS