USD/JPY Technical: Further potential drop towards ascending range support

[Redator]

This is a follow-up analysis and update of our prior report, USD/JPY Technical: Potential impending minor bullish breakout for Japanese yen, published on 8 August 2025.

The emergence of the Japanese yen’s strength has materialized as expected that saw the USD/JPY recording a week-to-date drop of -0.9% at this time of writing and breaking below the first support of 146.60 highlighted in our previous report (printed an intraday low of 146.21 on Thursday, 14 August).

Dovish Fed Funds rate futures pricing triggered by US Treasury Secretary‘s jawboning

The recent bout of Japanese yen strength has been yesterday’s jawboning by a key US White House official, the US Treasury Secretary Bessent, during a prime-time television interview, urging the US Federal Reserve to be more dovish, and suggested cutting interest rates by 150 basis points (bps) or more, starting with a 50 bps in the upcoming September FOMC meeting.

Based on the latest data from the CME FedWatch tool, the Fed Funds futures market has now started to price in a possibility of a 52% chance for a third Fed rate cut of 25 bps to occur on the last FOMC meeting of 2025 on 12 December to bring the Fed funds rate lower to 3.75%-3.5%, up from an earlier expectation of 2 rate cuts before Bessent’s media interview.

Let’s decipher the latest technical developments in the USD/JPY and update its short-term directional bias (1 to 3 days) from a technical analysis perspective.

Fig. 1: USD/JPY minor trend as of 14 Aug 2025 (Source: TradingView)

Fig. 2: 5-day rolling performances of the US dollar against major currencies as of 14 Aug 2025 (Source: TradingView)

Fig. 3: US/Japan implied short-term interest rate curve with USD/JPY as of 13 Aug 2025 (Source: MacroMicro)

Preferred trend bias (1-3 days)

Maintain bearish bias in any bounces for the USD/JPY with key short-term pivotal resistance at 147.85 (also the 20-day moving average), with next supports coming in at 145.85 and 145.10/144.80 (also the key medium-term ascending range support in place since 22 April 2025 low) (see Fig. 1).

Key elements

• The hourly RSI momentum indicator of the USD/JPY has dipped into the oversold region (below the 30 level) but has not flashed any bullish divergence condition. These observations suggest a potential imminent minor bounce on the USD/JPY rather than a steeper mean reversion rebound.
• In the past four weeks, the Japanese yen has lagged other major currencies in terms of relative performance against the greenback. Based on the five-day rolling performance as of Thursday, 14 August, the US dollar is now performing the second-worst against the Japanese yen; the USD/JPY has recorded a loss of -0.4%, below the US Dollar Index (-0.1%) (see Fig. 2).
• The monthly implied short-term interest rate spread (via short-term interest rate futures) between the US and Japan has continued to narrow in the next three months from 3.85% in August to 3.60% in September to 3.36% in October, and to 3.23% in November. This narrowing of the US/Japan implied short-term interest rate spread is likely to put downside pressure on the USD/JPY (see Fig. 3).

Alternative trend bias (1 to 3 days)

A clearance above 147.85 invalidates the bearish scenario and sees a squeeze up towards the upper limit of the medium-term ascending range configuration for the next intermediate resistances to come in at 148.75 and 149.50 (also the key 200-day moving average).

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