USD/JPY. Analysis and Forecast

[Ben Graham]

At the start of the new week on Monday, the Japanese yen appears vulnerable amid a combination of negative factors.

On Friday, U.S. President Donald Trump threatened to impose an additional 100% tariff on Chinese imports starting November 1 in response to Beijing's plans to restrict exports of rare earth metals. Vice President J.D. Vance backed this stance, warning that any aggressive actions by China would trigger even tougher retaliatory measures from the United States.

In response, China's Ministry of Commerce stated that it would defend national interests if the U.S. persisted with new tariff pressure. The escalation in rhetoric cast doubt on the possibility of a meeting between Trump and Chinese President Xi Jinping later this year, increasing market uncertainty and temporarily strengthening the yen as a safe-haven asset.

However, Trump later sought to ease concerns, posting on Truth Social that China's economy is doing fine and that the U.S. seeks cooperation, not harm. He stressed that both sides want to avoid economic casualties, which triggered a renewed wave of risk-on sentiment and led to a weakening of the yen on Monday.

At the same time, Japan's Komeito party broke off its 26-year alliance with the ruling Liberal Democratic Party (LDP), casting doubt on Sanae Takaichi's bid to become Japan's first female prime minister. This development further weighed on the yen, helping push the USD/JPY pair above the key psychological level of 152.00.

Traders continue to price in the possibility of a Bank of Japan rate hike before the end of the year, while the U.S. Federal Reserve is expected to cut rates twice. Meanwhile, the U.S. dollar is attempting to recover from Friday's decline.

The U.S. government shutdown, which began on October 1, remains unresolved. Due to the lack of a budget agreement, Trump has announced the first wave of federal employee layoffs. This adds to investor caution, prompting dollar bulls to adopt a more restrained stance and limiting optimism for the pair.

From a technical standpoint, with positive oscillators on the daily chart, new long positions should be considered only after a breakout above 152.45. In this case, prices could advance toward the round level of 153.00, facing some resistance near 152.70.

On the other hand, Friday's low around 151.15 serves as immediate support. A move below the 151.00 level could push the USD/JPY pair toward 150.70. A deeper corrective decline could extend to the psychological level of 150.00, which would act as a key reversal area.

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