USD/JPY: A medium-term yen bullish breakout looms, watch 146.30

[Redator]

Key takeaways

• BoJ policy shift intact: Japan’s central bank is still moving gradually toward policy normalization, supporting renewed yen strength.
• Tankan survey improvement: Q3 2025 Tankan survey for large manufacturers improved to 14, its highest since Q4 2024, boosting economic confidence.
• Yield spread narrowing: US-Japan yield differentials are shrinking, making US Treasuries less attractive versus JGBs, pressuring USD/JPY lower.
• Technical setup: A break below 146.30 may trigger a medium-term bearish breakout, exposing deeper downside targets.

After trading in a choppy sideways range for almost five months since late April 2025, the Japanese yen is likely on the brink of undergoing a medium-term (multi-week) appreciation against the US dollar.

Several macro/fundamental and momentum factors support this potential impending Japanese yen strength revival view, coupled with the Bank of Japan (BoJ)’s ongoing path of monetary policy normalization (increasing interest rates gradually).

Let’s review them in greater detail.

Further improvement in the Tankan survey with narrowing of US-Japan implied policy rate curve spread

Fig. 1: Japan core-core CPI, Average Cash Earnings, Tankan Survey, Consumer Confidence as of Sep 2025 (Source: MacroMicro)

Fig. 2: US/Japan short-term policy rate curve spread as of 1 Oct 2025 (Source: MacroMicro)

One of the key economic data points, other than the inflation trend, that the BoJ monitors to determine and set the path of monetary policy in Japan, is the quarterly Tankan surveys on manufacturers, which poll their outlook on overall business conditions, considering profits under current conditions and for the next three months.

The latest Q3 2025 Tankan survey for large Japanese manufacturers (in index form) has further improved to 14 from 13 in Q2, which is also its highest reading since Q4 2024, as trade tariff tensions between the US and Japan have eased since the finalization of the US-Japan trade deal in early September 2025 (see Fig. 1)

Hence, the short-term interest rate futures market in Japan has continued to price in an interest rate hike by the BoJ in Q4 2025. This observation is evident in the US-Japan implied policy rate curve spread.

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 the October 2025 print of 3.25% to 3.12% in November 2025, 2.99% in December 2025, and 2.80% in January 2026.

In addition, the current US-Japan implied policy rate curve spread has shifted downwards from three months ago at this juncture (see Fig. 2). The further narrowing of the US/Japan implied short-term interest rate spread is likely to put downside pressure on the USD/JPY.

The 10-year US Treasury/JGB yield spread is breaking below a major support level

Fig. 3: Yield spreads of US Treasury/JGB with major trend of USD/JPY as of 2 Oct 2025 (Source: TradingView)

The yield premium between the 2-year US Treasury note and the 2-year Japanese Government Bond (JGB) has broken below a former major support of 2.90% since the week of 18 August 2025 and narrowed further to 2.69% at the time of writing.

The 10-year yield spread between the US Treasury note and JGB is now challenging the 2.47% major support after it hovered slightly above it for the entire month of September 2025. Right now, it is staging an intraday breakdown with a current level of 2.45% (see Fig. 3)

The continued narrowing of the yield differential indicates that 10-year US Treasuries are becoming relatively less attractive compared to 10-year JGBs, a dynamic that may in turn place downside pressure on USD/JPY.

Let’s now examine the USD/JPY from a technical analysis perspective to determine its latest short-term (1 to 3 days) trend bias and key technical levels to watch.

Fig. 4: USD/JPY minor trend as of 2 October 2025 (Source: TradingView)

Fig. 5: USD/JPY medium-term trend as of 2 October 2025 (Source: TradingView)

Preferred trend bias (1-3 days)

Bearish bias below 147.80/148.10 short-term pivotal resistance for USD/JPY within its range configuration for the next intermediate support to come in at 146.70, followed by the medium-term “Ascending Wedge” range support now at 146.30.

A break below 146.30 triggers a potential medium-term bearish breakout of the USD/JPY for a multi-week bearish impulse down move sequence to expose the next 145.20 intermediate support in the first step.

Key elements

• The price actions of the USD/JPY have traded below its 20-day and 50-day moving averages, which are now acting as a key short-term resistance zone of 147.80/148.10 (see Fig. 4).
• The hourly Stochastic oscillator of the USD/JPY has now risen to a resistance level of 75, which is coming close to its overbought zone (above the 80 level) (see Fig. 4)
• The USD/JPY has undergone a 5-month bearish “Ascending Wedge” range configuration since the 22 April 2025 low of 139.89, with the lower boundary of the “Ascending Wedge” now acting as a key medium-term support at 146.30 (see Fig. 5).
• The daily MACD trend indicator of the USD/JPY has flashed out a bearish crossover condition at this juncture after it formed a resistance on Monday, 29 September 2025. These observations suggest a potential imminent change of medium-term trend condition on the USD/JPY from sideways to a downtrend (see Fig. 5).

Alternative trend bias (1 to 3 days)

A clearance above 148.10 invalidates the bearish scenario for the USD/JPY and sees a squeeze up towards the next intermediate resistance at 148.60/148.90, followed by the key medium-term resistance of 149.90 (the upper boundary of the “Ascending Wedge” range configuration).

Opinions are the authors'; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. The provided publication is for informational and educational purposes only.
If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please refer to the MarketPulse Terms of Use.
Visit https://www.marketpulse.com/ to find out more about the beat of the global markets.
© 2025 OANDA Business Information & Services Inc.