USD/JPY Price Analysis and Forecast: Dovish Fed Expectations Undermine the U.S. Dollar

[Redator]

The Japanese yen has recovered intraday losses that were previously driven by domestic political instability in Japan. The ruling coalition between the Liberal Democratic Party and Komeito collapsed, creating uncertainty as newly appointed Prime Minister Sanae Takaichi seeks support for confirming her leadership. The strategy remains consistent—continue the economic stimulus policies of former Prime Minister Shinzo Abe, focusing on aggressive fiscal spending and accommodative monetary measures, while simultaneously strengthening the yen's role as a haven currency amid global geopolitical instability.

On the U.S. side, international trade tensions have escalated sharply. The U.S. has expanded restrictions on the export of high-tech goods, prompting China to tighten controls over rare-earth metal exports. The introduction of reciprocal port duties and recent remarks by Donald Trump declaring a "total trade war" have worsened the situation, casting a shadow over the global economic outlook. In response, the U.S. Treasury Secretary proposed delaying tariff hikes if China agrees to ease restrictions on the export of critical resources, offering a potential window for a temporary de-escalation.

Geopolitical risks remain elevated. U.S. Defense Secretary Pete Hegseth warned Russia of serious consequences if military operations continue—intensifying tensions surrounding the Ukraine conflict and reinforcing demand for the yen as a safe-haven asset. Simultaneously, the Bank of Japan's key policy rate remains in focus as Naoki Tamura is tasked with gradually guiding it toward more neutral levels. This direction sharply diverges from rising expectations that the U.S. Federal Reserve will cut interest rates by 25 basis points in both October and December.

In the U.S., the budget crisis continues. A judge has temporarily blocked the dismissal of federal employees amid ongoing funding disputes, while the Senate failed to pass another government funding resolution. The persistent uncertainty over the U.S. budget is exacerbating pressure on the dollar and contributing to heightened market volatility, which may benefit the yen's safe-haven status.

From a technical perspective, a significant decline toward the 150.70 area would gradually shift the bias in favor of the bears. However, daily chart oscillators remain in positive territory, supporting a favorable outlook for continued growth. A rebound above the key psychological level of 151.00 will face immediate resistance near 151.40, followed by another resistance zone around 151.70. A sustained move above this key area could drive USD/JPY further toward the round level of 152.00 and beyond.

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