USD/JPY. Analysis and Forecast

[Ben Graham]

Today, the Japanese currency is attracting buyers, but investors remain cautious about the possibility of monetary tightening by the Bank of Japan amid the pro-stimulus stance of Prime Minister Sanae Takaichi and her desire to maintain low interest rates. This reduces the impact of statements from Bank of Japan Governor Kazuo Ueda, who has noted that inflation is accelerating and approaching the 2% target, continuing to put pressure on the yen's exchange rate.

Additional momentum came from optimism surrounding the resumption of the U.S. federal government's operations, which has reduced the yen's appeal as a safe-haven currency. At the same time, the recent decline in the national currency has caused concern for Finance Minister Satsuki Katayama, who warned about potential currency volatility and possible intervention by Japanese regulators to curb excessive yen weakness. These remarks are restraining bearish sentiment toward the yen.

Amid uncertainty over the Bank of Japan's next policy decisions, a broad strengthening of the yen remains in question.

On Thursday, Bank of Japan Governor Kazuo Ueda emphasized that the central bank remains focused on achieving moderate inflation supported by wage growth, which should aid in improving the country's economy. He noted that consumer confidence remains stable thanks to rising household incomes and improvements in the labor market, while core inflation is gradually approaching the 2% target.

Prime Minister Takaichi, in turn, stated that the government and the central bank will continue working together to stimulate the economy. She pledged to maintain policies similar to those pursued by former Prime Minister Shinzo Abe.

At the same time, the U.S. dollar is struggling to attract buyers. While the U.S. Senate passed a funding bill that ended the longest government shutdown, boosting investor confidence and risk appetite, dollar bulls still worry about a potential slowdown in economic growth due to a possible Federal Reserve rate cut — a concern reflected in current market sentiment.

The CME Group's FedWatch tool indicates a 60% probability of a 25-basis-point rate cut in December. These expectations were reinforced by October data showing a significant decline in job creation and a drop in consumer sentiment to a 3.5-year low, which strongly pressures the Fed toward easing policy.

These factors contrast sharply with signals from the Bank of Japan, which is hinting at a possible rate hike as early as December — despite Prime Minister Takaichi's accommodative stance.

Taken together, expectations of potential interventions and ongoing geopolitical uncertainty are discouraging investors from selling the yen or pushing its exchange rate lower, thereby influencing USD/JPY dynamics.

From a technical perspective, a corrective pullback below the 154.50–154.45 resistance level can be viewed as a buying opportunity, likely limited to the round 154.00 level. However, a convincing break below that level could trigger some technical selling, pushing the USD/JPY pair toward intermediate support at 153.65–153.50. Spot prices could then extend their decline toward the round 153.00 level.

Nevertheless, daily-chart oscillators remain positive, confirming the likelihood of further upside. A sustained move above the psychological 155.00 level would validate a constructive outlook and lift spot prices higher.

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