USD/JPY. Analysis and Forecast

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Today, the Japanese yen is leading amid concerns about possible interventions. Japan's Finance Minister Katsunobu Kato noted that recently there have been one-sided and sharp fluctuations in the exchange rate, emphasizing the importance of stable currency movements that reflect the economy's fundamentals. This has supported the yen, although political uncertainty could limit its gains.

Last week, the long-standing LDP–Komeito coalition unexpectedly collapsed, as newly elected LDP leader Sanae Takaichi awaits a parliamentary vote to confirm her as Japan's first female prime minister. The breakup means Takaichi will need support from other parties to advance her key initiatives.

Nevertheless, growing political uncertainty could create challenges for the Bank of Japan regarding further rate hikes and may weaken the yen. In addition, optimism triggered by U.S. President Donald Trump's decision to reconsider his stance on Chinese tariffs has been another factor discouraging investment in safe-haven currencies. Trump softened his rhetoric, having earlier threatened to impose additional 100% tariffs on Chinese imports starting November 1, and stated on Truth Social that the U.S. does not wish to harm China. He noted that both nations aim to avoid economic losses, which has eased fears of a trade war between the world's two largest economies.

The U.S. dollar remains in a familiar range, trading near the month's high, which also helps the USD/JPY pair avoid global losses. However, dovish expectations from the Federal Reserve may limit further dollar strength and the pair's upward potential. According to CME's FedWatch Tool, the probability of a 25-basis-point Fed rate cut in October and December stands at about 97% and 90%, respectively. Meanwhile, traders are also pricing in the likelihood of rate hikes by the Bank of Japan, given persistent inflation and solid economic data.

The U.S. government shutdown has now entered its third week, as the budget impasse continues.

From a technical perspective, the USD/JPY pair is struggling to hold off a decline. However, positive oscillators on the daily chart suggest potential for further upside. Buying above the round level of 152.00 could lift the pair toward 152.70–152.75, and a breakout above that would confirm a bullish outlook, pushing spot prices toward 153.00, allowing a retest of the eight-month high near 153.25–153.30, seen last Friday.

On the other hand, a drop below 151.56 could attract buyers near 151.15 (Friday's swing low), followed by the psychological level of 151.00. A decisive break below 151.00 would leave USD/JPY vulnerable to an accelerated decline toward the psychological level of 150.00, with intermediate support around 150.70.

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