USD/JPY: Price Analysis and Forecast

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The Japanese yen continues to gain intraday strength. Despite mixed views expressed by the Bank of Japan (BoJ) in its recently released Summary of Opinions, investors appear convinced that the central bank is leaning toward a path of monetary policy normalization. This perception is helping to offset weak domestic indicators such as industrial production and retail sales, lending additional support to the yen. Rising geopolitical tensions and fears of a potential U.S. government shutdown also contribute to the yen's demand as a safe-haven currency.

The Bank of Japan's tone remains notably hawkish, standing in contrast to growing market expectations that the U.S. Federal Reserve may cut interest rates twice before the end of the year. This divergence is weighing on the dollar and supporting demand for the lower-yielding yen, indicating a broader shift toward downside pressure on the USD/JPY pair.

The yen continues to benefit from both the BoJ's relatively aggressive policy stance and increased safe-haven flows.

The BoJ's Summary of Opinions for September, published on Tuesday, showed mounting pressure from "hawks" advocating for policy normalization. Still, board members remained uncertain about the dynamics of inflation and the influence of global economic factors, signaling that any future rate hikes will be carefully considered.

On the macroeconomic front, Japan's retail sales slipped by 1.1% year-over-year in August — the first decline since February 2022 and the steepest drop since August 2021. This was significantly worse than the market's forecast for a 1% increase and followed a 0.4% decrease in July. Additionally, industrial production declined for the second consecutive month, falling 1.2% in August, against expectations for a 0.7% decrease. These figures reflect growing caution among Japanese businesses, partly due to concerns over U.S. tariffs.

Regarding recent trade developments, the U.S. administration announced on Tuesday that President Donald Trump has signed an executive order to adjust the import regime for lumber, timber, and related products. Imports from the European Union and Japan will be subject to a restriction of up to 15%.

At the same time, domestic political uncertainty in Japan is fueling speculation that the BoJ may delay its next rate hike, which in turn limits further immediate gains in the yen following two consecutive days of appreciation versus the U.S. dollar. Nevertheless, a major pullback in the currency remains unlikely. Traders are still factoring in the potential for a 25-basis-point rate hike by the BoJ as soon as October. Meanwhile, expectations for two Fed rate cuts before year-end, combined with risks from the U.S. government shutdown, continue to cap the dollar's upside and support the lower-yielding but more stable Japanese yen.

From a technical standpoint, the USD/JPY pair has found support at the 50-day Simple Moving Average (SMA), just above a key support level at 147.50. A sustained break below this level could send the pair down toward the psychological 147.00 mark, increasing the probability of a bearish trend continuation.

Should prices recover above the psychological level of 148.00, the pair may attempt to revisit the 200-day SMA around the 148.40 area — followed again by resistance at the round number of 149.00 and then 149.45. A successful break of this zone could open the door toward the sentiment-sensitive 150.00 level.

Meanwhile, oscillators on the daily chart remain in positive territory, keeping upward momentum modestly alive and leaving some hope for the bulls.

The material has been provided by InstaForex Company - www.instaforex.com