USD/JPY Price Stuck at 147.6 With Fed and BOJ Decisions in Focus

USD/JPY Trapped in a Tight Range With Fed and BOJ in Focus

The USD/JPY exchange rate is locked between ¥147.00 and ¥149.00, reflecting an uneasy balance between U.S. monetary easing bets and Japan’s cautious policy stance. The pair closed at ¥147.66, after trading as high as ¥148.07 last week, showing the market’s reluctance to break the range before this week’s major central bank decisions.

Fed Policy Expectations Drive Correlation With USD/JPY

Market pricing shows four 25-basis-point cuts from the Federal Reserve by June 2026, totaling around 109 basis points. This expectation has tightened the negative correlation between rate cut pricing and USD/JPY to -0.87, meaning the pair moves almost inversely to Fed expectations. The Fed is widely expected to cut 25 bps this week, taking the funds rate to 4.00–4.25%. If the dot plot signals a funds rate near 3.00–3.25% by end-2026, aligned with market pricing, USD/JPY may remain stable. However, a more aggressive six-cut outlook would likely push the yen higher, testing ¥146.00 and below.

U.S. Economic Data and Labour Market Pressures

The U.S. economy is flashing signs of strain. Weekly jobless claims spiked to levels not seen in almost four years, while consumer sentiment dropped sharply according to the University of Michigan survey. Inflation, however, surprised to the upside at 2.9% year-on-year in August, complicating the Fed’s messaging. Weakness in retail sales or further deterioration in the Empire State Manufacturing Index — expected to fall from 11.9 to 3 — could accelerate dovish bets, pushing USD/JPY lower toward ¥146.20, the 50-day EMA.

Bank of Japan Balances Dovish Tone Against Market Pressure

The Bank of Japan meets this week with its policy rate at 0.5%, and markets are pricing a 20% chance of a hike. Since lifting rates in July 2024 and again in January 2025, the BOJ has signaled a pause, but political uncertainty following Prime Minister Ishiba’s resignation has weakened sentiment. Traders see around two hikes priced through mid-2026, but Governor Kazuo Ueda’s dovish reputation keeps expectations muted. If his tone shifts hawkish, USD/JPY could drop rapidly below ¥146.00, while vague or cautious guidance would reinforce resistance at ¥149.00.

Safe-Haven Yen Demand on Global Market Stress

The yen has found modest support from safe-haven demand amid Fitch’s downgrade of France’s sovereign rating to AA-, raising fears of European debt contagion. This risk-sensitive backdrop lifted the yen to ¥147.39 earlier this week. However, broader flows show investors still favoring U.S. yields, keeping the yen capped. The correlation of USD/JPY with equity volatility has collapsed, meaning risk appetite has little impact compared to the rate differential story.

Technical Outlook for USD/JPY Levels

On charts, USD/JPY momentum indicators remain flat. RSI (14) and MACD show no strong directional bias, reinforcing the 147–149 trading corridor. Above, resistance at ¥149.35 aligns with the 200-day EMA, with further topside levels at ¥151.00 and ¥152.40. Support sits at ¥147.00, then ¥146.20 and ¥144.40. A decisive break depends on Fed and BOJ outcomes this week, with the possibility of a breakout as central banks shift guidance.

Market Scenarios and Investment Stance

If the Fed confirms a gradual easing cycle and the BOJ remains vague, USD/JPY likely resumes testing ¥149.00, keeping the dollar supported. If the Fed’s tone turns dovish with multiple cuts, the pair could collapse toward ¥144.00, particularly if Ueda hints at further tightening. Given current pricing, the pair leans slightly bearish, with risks skewed toward yen strength. With the dollar losing ground across other majors, we rate USD/JPY a Hold with downside bias, watching closely for a break of ¥146.20 that would open a path to ¥144.00.

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