JPY/USD Forecast: Yen Weakens to 0.00680 as Fed-BoJ Divergence Drives Dollar Strength

USD/JPY Price Action Anchored Around 148 as Dollar Strength Meets BoJ Caution

Dollar Momentum Keeps USD/JPY Elevated Despite Short-Term Pullbacks

The USD/JPY pair closed the week near 148.35, paring back after three days of gains but holding within striking distance of recent highs. The retreat followed a surge fueled by strong U.S. macroeconomic data and upbeat sentiment surrounding the U.S.–EU trade agreement that eased tariff tensions. The U.S. Dollar Index remains firm near 98.67, reflecting broad demand for the greenback, while traders are awaiting more clarity from both the Federal Reserve and the Bank of Japan as policy divergence remains the defining theme. The pair’s one-year performance shows a 7.00% year-to-date gain, underlining how wide interest rate differentials continue to pressure the yen.

Technical Setup Points to 150 as the Key Threshold

Technically, USD/JPY is trading within an ascending triangle pattern that began with April’s low near 139.90. The pair is finding consistent support above the 20-day EMA at 147.04, while resistance sits around 148.60. A breakout above July’s high of 149.19 would target the psychologically significant 150.00 level, followed by 151.20, a resistance zone last tested in March. Momentum indicators are supportive: the RSI is hovering close to 60, suggesting upside potential without signaling overbought conditions. Key support lies at 145.85, the July 24 low, with deeper downside guarded at 144.22 and 143.45. For now, the technical posture favors the bulls, but volatility around central bank communications could trigger sharp swings.

Federal Reserve Uncertainty Keeps Traders Watching September

The Federal Reserve has maintained its benchmark rate at 4.25%–4.50%, but internal divisions are showing. Two governors favored a rate cut in the last meeting, highlighting the tension between inflation risks and signs of labor market softening. Recent data showed Q2 GDP growth at 3%, well above the 2.4% consensus, and ADP private payrolls at 104,000, beating forecasts of 78,000. Powell’s Jackson Hole remarks leaned cautious, stressing inflation uncertainty but admitting current policy is “restrictive.” The CME FedWatch tool shows markets pricing a 74% chance of a September rate cut, down from 82% earlier in the week, trimming dovish bets but still leaving significant easing expectations in play. U.S. Treasury yields rose alongside the dollar, keeping USD/JPY supported above 148.

Bank of Japan Holds Steady but Intervention Risks Linger

The Bank of Japan kept its policy rate anchored at 0.40%–0.50%, signaling no immediate tightening while acknowledging ongoing trade and tariff headwinds. The persistence of ultra-loose monetary policy contrasts starkly with the Fed’s higher-for-longer approach, widening the yield gap and undermining the yen. However, Japanese officials remain watchful, with speculation of intervention resurfacing as the yen weakens beyond 148.50. Traders recall that past interventions have occurred when levels approached 150–152, suggesting that another breach of these areas could bring official responses, especially if volatility accelerates. For now, the BoJ’s cautious stance allows U.S. data to dominate direction, but intervention risk is an important wildcard.

Macro Forces Beyond Central Banks Driving USD/JPY

Trade dynamics and geopolitical risks add layers to the pair’s outlook. U.S.–EU tariff relief bolstered dollar sentiment by reducing supply chain uncertainty, while in Asia, Japan’s export competitiveness is coming under pressure as the yen weakens, raising costs for households and importers. Global demand for safe havens has not yet benefited the yen, with investors instead flocking to the dollar amid Fed credibility and higher yields. Market participants are watching upcoming releases, including U.S. jobless claims and PCE inflation data, to gauge whether the Fed can justify easing in September. Strong numbers would weaken the case for cuts, lifting USD/JPY further toward 150, while softer outcomes could invite a correction back toward 146.

Positioning, Flows, and Medium-Term Scenarios

Institutional positioning shows continued preference for long-dollar, short-yen strategies, as the pair’s carry trade appeal remains intact. With JPY/USD at 0.006800, reflecting a 0.91% daily gain, the short-term bias is tilted higher. Year-on-year, the yen has slipped 0.42%, and over five years it has collapsed by more than 28%, a reminder of structural challenges facing Japan’s currency. Medium-term projections suggest that if the Fed slows its easing pace and Japan resists hiking, USD/JPY could retest 150.90 and even challenge the 2024 high at 161.94. Conversely, any decisive move by the BoJ toward tightening, or coordinated G7 intervention, could quickly reverse momentum.

Buy, Sell, or Hold?

At current levels, USD/JPY remains a Buy for momentum-driven strategies, with technicals and fundamentals aligned toward further dollar strength. The risks lie in intervention and unexpected dovish shifts by the Fed, but with support well established above 145.85 and targets at 150–151.20, the pair favors a bullish stance. Traders should remain vigilant for policy headlines, but the broader setup keeps the yen under pressure and the dollar firmly in control.

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