USD/JPY Price Forecast - Dollar to Yen Falls Below 147.00 as U.S. Job Losses, Shutdown Risks, and BoJ Hawkish Tilt Drive Yen Strength

USD/JPY Struggles Below 147.00 as Dollar Weakness Meets Yen Strength

USD/JPY is locked around 146.60–147.20, with volatility fueled by a combination of U.S. political paralysis, labor market cracks, and the Bank of Japan’s quiet but persistent shift away from ultra-loose policy. After touching 149.90 in late September, the pair reversed sharply, losing nearly 300 pips in a week. The rejection just below the 150.00 psychological barrier highlights how fragile dollar momentum has become in Q4.

US Government Shutdown and Labor Market Erosion Weigh on the Dollar

The U.S. government shutdown has created a “data blackout,” with the crucial September Nonfarm Payrolls report unlikely to be published. Investors are left with the ADP private payrolls release, which showed a 32,000 job loss in September, the steepest decline since March 2023. August was revised lower as well, from a gain of 54,000 to a loss of 3,000. Meanwhile, the ISM manufacturing PMI printed 49.1, marking seven consecutive months of contraction. These signals add to growing evidence that the U.S. economy is slowing. The CME FedWatch Tool now assigns a 99% probability of a 25 bps rate cut in October, with odds of another in December climbing toward 86%.

Yield Differentials Shrink as U.S. Treasuries Lose Appeal Against JGBs

The U.S.-Japan rate spread, a critical driver of USD/JPY, is narrowing. The 2-year U.S. Treasury vs. JGB yield premium dropped to 2.69% from 2.90% in mid-August. The 10-year spread has slid to 2.45%, breaking key support at 2.47%. With Treasuries losing relative appeal, capital is tilting toward yen-denominated assets, providing structural support for JPY appreciation.

Bank of Japan Policy and Domestic Data Bolster Yen

The Bank of Japan’s recent summary of opinions showed board members openly discussing a 0.25% rate hike as early as October, marking another step in policy normalization. Inflation remains above target, with Japan’s core-core CPI still elevated. The Q3 Tankan survey strengthened to 14 from 13, the best reading since Q4 2024, signaling robust corporate sentiment. Labor data is equally firm, with the unemployment rate holding near 2.3–2.4%. Together, these metrics justify a tightening bias, narrowing the policy gap with the Federal Reserve.

Japanese Politics and Market Sentiment

The ruling Liberal Democratic Party’s leadership election on October 4 is pivotal. The outcome will determine Japan’s next Prime Minister and could shift fiscal and monetary priorities. Investors expect continuity in support for gradual BoJ normalization, which has added confidence to yen bulls. Meanwhile, global equity resilience — with the S&P 500 pushing record highs — has reduced safe-haven bids for the dollar, leaving USD/JPY vulnerable to downside pressure.

Technical Picture: Bearish Setup Intensifies

Technically, USD/JPY has broken below both the 20-day and 50-day moving averages, now acting as resistance at 147.80–148.10. Price action carved out a five-month ascending wedge, with critical support at 146.30. A decisive break under 146.30 would signal a medium-term bearish breakout, opening the way to 145.20, then 145.00, with deeper risk toward 142.80, the July low. Candlestick patterns reinforce this, as repeated rejections at 148.80 and a string of red candles have shaped a potential “three black crows” continuation signal. The RSI at 31 indicates oversold conditions, allowing for a short-term rebound, but momentum bias remains lower.

Cross-Pair Signals: EUR/JPY and GBP/JPY Weakness Confirm Yen Strength

Moves in other yen crosses corroborate the trend. EUR/JPY reversed from the 175.00 resistance, falling more than 250 pips as a rising wedge broke down. Support rests at 173.90 and 172.40, key Fibonacci retracement zones. GBP/JPY dropped 270 pips in four days, slipping below 200.00 and now testing 197.50, where psychological and Fibonacci support converge. The lower-lows and lower-highs pattern reinforces broader yen strength across major pairs, not just versus the dollar.

Macro Risks Ahead: Fed, Shutdown, and Data Blackout

Markets remain hypersensitive to headlines. If the shutdown extends, the U.S. could lose $15 billion in GDP per week, according to White House estimates, with a one-month stalemate potentially adding 43,000 unemployed. Delays in CPI (due October 15) would further complicate Fed decision-making. For USD/JPY traders, the absence of reliable U.S. data only magnifies the importance of Japanese fundamentals and yield spreads.

That's TradingNEWS