USD/JPY Price Forecast - (JPY=X) Rallies to 153.00 as Fed Policy Divergence and Japan’s $92B Stimulus Undermine Yen

USD/JPY (JPY=X) Surges Toward 153 as PMI Strength, Fed Easing Bets, and Japan’s Stimulus Debate Drive Cross-Currency Volatility

The USD/JPY (JPY=X) pair climbed near 153.00, marking its sixth consecutive daily gain, fueled by strong U.S. PMI data, softer inflation, and persistent yen weakness amid renewed fiscal expansion in Tokyo. The move consolidates one of the dollar’s strongest runs this quarter, with the pair trading just below multi-month highs at 152.80–153.10, reflecting diverging policy trajectories between the Federal Reserve and the Bank of Japan.

U.S. Economic Data Reinforces Dollar Momentum

The dollar’s latest advance came as the S&P Global Composite PMI jumped to 54.8 in October from 53.9, signaling the strongest U.S. private-sector expansion in three months. Services PMI climbed to 55.2, and Manufacturing PMI edged up to 52.2, both beating expectations. The data reaffirmed underlying U.S. economic resilience, helping offset softer Consumer Price Index (CPI) readings. Headline CPI rose 0.3% MoM, slightly below the 0.4% forecast, while annual inflation moderated to 3.0%, down from 3.1% expectations. The core CPI printed at 0.2% MoM, suggesting stable underlying price pressures.

This combination of strong business activity and easing inflation reinforced expectations that the Federal Reserve will continue its gradual rate-cut trajectory. Markets now price in a 25 basis-point cut at the October 29–30 FOMC meeting, with another likely in December, bringing total 2025 cuts to 75 bps. Despite the softer CPI, the PMI rebound suggests the U.S. economy can absorb lower rates without triggering a slowdown, keeping Treasury yields elevated and sustaining dollar demand.

Japanese Yen Under Pressure Amid Fiscal Expansion and Policy Stagnation

In Japan, the yen’s persistent weakness remains tied to fiscal and policy divergence. Headline and core Japanese CPI rose to 2.9% YoY in September, accelerating from 2.7% in August and marking the first uptick since May. Yet the Bank of Japan (BoJ) continues to maintain an ultra-loose stance, reluctant to raise rates as fiscal pressures mount. Prime Minister Sanae Takaichi’s newly announced ¥13.7 trillion ($92.19 billion) stimulus package — exceeding last year’s proposal — aims to cushion households and boost small business activity through fuel tax cuts, subsidies, and local grants. While the measures seek to counter inflation’s impact, they risk further yen depreciation as they expand Japan’s debt load and dilute real yield advantage against the U.S. dollar.

Finance Minister Katayama acknowledged the potential need for new government bond issuance to fund the package, a move that underscores fiscal prioritization over currency stability. Market participants now expect the USD/JPY cross to remain supported above 151.60, as Japanese authorities are seen tolerating further weakness to protect domestic growth momentum.

Technical Picture: Double-Top Resistance Near 153.10

Technically, USD/JPY trades just below a significant resistance zone at 153.08–153.27, the October high and the upper bound of the ascending channel that has defined the pair since early summer. A daily close above 153.30 would confirm a breakout, potentially targeting the 78.6% Fibonacci retracement of the 2025 range near 154.82 and extending toward 156.25 — the 1.618% extension of the April rally.

Conversely, near-term support lies at 151.60–151.95, defined by the 61.8% retracement and prior swing highs from August 2023. A break below 150.90 would signal potential exhaustion, with secondary support at 149.80 and 148.65 (the May high and December low). RSI readings remain elevated around 68, suggesting short-term overbought conditions but no immediate bearish divergence, keeping momentum intact.

The Golden Cross formed in early October — where the 50-day EMA crossed above the 200-day EMA — continues to provide a structurally bullish backdrop. The Ichimoku cloud also supports the uptrend, with the pair trading well above its conversion and baseline lines.

Fed and BoJ Policy Divergence to Define Next Leg

The Federal Reserve’s October policy decision and the BoJ meeting next week form the critical twin catalysts for USD/JPY. Markets broadly anticipate the Fed to cut rates but maintain a cautious tone on further easing, while the BoJ remains firmly on hold. This divergence continues to anchor U.S.-Japan yield spreads near cycle highs — with the 10-year Treasury-JGB spread hovering above 380 basis points — supporting sustained dollar inflows.

However, if the Fed signals faster cuts or references a slowdown in PMI-driven momentum, USD/JPY could briefly retrace toward 151.50. Conversely, any hint of BoJ policy normalization would trigger sharp volatility, though analysts deem such a move unlikely given Japan’s fragile wage growth and fiscal strain.

Market Sentiment, Positioning, and Cross-Currency Impact

CFTC data shows net speculative long positions in USD/JPY at a three-month high, suggesting risk of near-term profit-taking if U.S. yields soften. Still, the broader macro setup remains dollar-favorable. The yen’s weakness has also spilled into regional FX pairs — with JPY losing 0.12% vs USD, 0.21% vs EUR, and 0.24% vs CAD — underscoring the currency’s broad-based softness.

Meanwhile, consumer sentiment in the U.S. slipped in October, with the University of Michigan index at 53.6, down from 55.1 in September, and expectations at 50.3. This divergence between consumer caution and corporate resilience highlights a market still underpinned by productivity growth and labor stability — both dollar-positive factors.

USD/JPY Price Forecast: Bulls Eye 154.80, Support Firm Above 151.50

From a market structure standpoint, USD/JPY’s trend remains bullish while above 151.60. The pair has appreciated more than 4.4% off monthly lows, maintaining strong upward momentum. A confirmed close above 153.27 would open the door to 154.80, followed by potential resistance near 156.20 — aligning with multi-year Fibonacci extensions. If momentum fades, the initial retracement zone sits at 150.80–149.80, an area likely to attract dip buyers.

Given the combination of robust U.S. economic data, dovish BoJ policy, and Japan’s fiscal expansion, the balance of risk remains skewed to the upside. Traders expect volatility around the upcoming FOMC and BoJ meetings, but the structural trend favors the dollar until Japan demonstrates credible policy tightening.

Verdict: BUY — USD/JPY Poised for Further Gains Toward 154.80 as Policy Divergence Deepens

The sustained rally in USD/JPY (JPY=X) reflects a perfect convergence of macro divergence, yield advantage, and market positioning. With U.S. growth holding firm and Japan doubling down on stimulus, the yen faces continued depreciation pressure. Unless the BoJ signals a clear tightening shift, USD/JPY remains a BUY, targeting 153.80–154.80 near term and 156.20 medium term, with downside support anchored at 151.60–150.90.

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