USD/JPY Price Forecast: Fed Cut Bets Pressure Dollar While Yen Gains on Policy Shift

USD/JPY Price Under Pressure as Fed Rate Cut Bets Rise

The USD/JPY pair is pinned between technical barriers and shifting macroeconomic winds as traders brace for the dual impact of U.S. labor market weakness and Japan’s evolving monetary stance. The dollar index has been dragged lower after the latest nonfarm payrolls report showed only 22,000 new jobs in August, well below the forecast of 75,000. Unemployment ticked higher to 4.3%, while Treasury yields slipped, with the 10-year benchmark down 2% on the day to 4.09%, the lowest since July. This soft data has bolstered market conviction that the Federal Reserve will deliver a 25 bp rate cut in September and another in October, with CME FedWatch now showing combined odds above 75%.

Technical Setup for USD/JPY Between 147.80 and 149.00

On the charts, USD/JPY has struggled to break above its 200-day moving average near 148.79, with repeated rejections keeping resistance locked around the 148.65–149.00 zone. An attempted breakout this week quickly reversed, pulling the pair back to 147.88, which now acts as immediate support. Failure to defend that level exposes the August low near 147.00, and if that breaks, deeper downside toward 146.00 and 145.00 could unfold. On the upside, only a decisive close above 149.20 would re-open the path toward 150.92, the August peak, and then the 151.00 level. Momentum indicators are neutral, with RSI hovering in the mid-50s, reflecting indecision as traders await stronger catalysts.

Bank of Japan Policy Path Clouded by Political Uncertainty

Japan’s domestic backdrop adds complexity. Wage growth accelerated to 4.1% year-on-year in July, up from 2.5% in June, while household spending rebounded 1.7% month-on-month after a 5.2% slump. Rising wages and improved consumption strengthen the case for the Bank of Japan to consider another rate hike later this year. However, political uncertainty continues to weigh, with resignations in the ruling LDP raising questions about whether leadership changes could pressure the BoJ to slow policy normalization. Despite turbulence, analysts still expect a rate hike by October or year-end, which, if confirmed, would strengthen the yen and pressure USD/JPY lower.

U.S. Data Flow and Fed Expectations Remain in Focus

The U.S. economy presents a split picture. The ISM services PMI rose to 52.0 in August, up from 50.1, showing resilience in non-manufacturing activity, while jobless claims and ADP private payrolls disappointed. This divergence has left the dollar’s outlook fragile, but the market is firmly leaning dovish. Fed officials, including New York’s John Williams and Chicago’s Austan Goolsbee, have acknowledged softening labor conditions while stressing inflation risks, leaving the Fed cautious but clearly biased toward easing. Should the Fed cut in back-to-back meetings, USD/JPY could see structural pressure back toward 145.00, aligning with Rabobank’s three-month projection.

Global Risk Sentiment and Correlation with Equities

Wall Street’s record-setting run has complicated flows into the yen. The S&P 500 closed above 6,500, with optimism around Fed easing fueling risk appetite and weakening the safe-haven yen. However, if U.S. equities retrace or if Treasury yields fall further, USD/JPY may decouple from risk-on sentiment and align more closely with interest rate differentials. Japan’s 30-year government bond yield, at its highest since 1998 earlier this week, underscores the divergence in bond markets that continues to drive volatility in the pair.

USD/JPY Outlook and Investment View

At 148.30, USD/JPY is locked in a tug-of-war between bullish dollar bets looking for a rebound to 150 and the bearish narrative of Fed cuts combined with a hawkish BoJ. The decisive catalyst remains the trajectory of U.S. labor data and the BoJ’s willingness to tighten policy despite political noise. With rate markets fully pricing in Fed easing, the downside risk may outweigh upside potential in the near term. Unless bulls can secure a close above 149.20, the bias leans bearish toward 147.00 and potentially 145.00. Medium term, however, volatility will remain elevated, making the pair a tactical trading opportunity rather than a straightforward directional play.

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