USD/JPY Holds Above 147 as Fed Drama and BOJ Hawkishness Collide
The USD/JPY pair is trading around ¥147.50 after a volatile week that saw sharp swings driven by U.S. political turmoil, Federal Reserve policy uncertainty, and stronger-than-expected signals from the Bank of Japan. The yen briefly surged to ¥146.99 after President Trump announced the dismissal of Fed Governor Lisa Cook, raising fears over the central bank’s independence. Although the dollar recovered intraday, concerns over Fed credibility capped gains, while Japanese policymakers continue laying the groundwork for rate hikes that could strengthen the yen further.
Federal Reserve Credibility Crisis Pressures the Dollar
The dismissal of Lisa Cook has rattled markets, injecting political risk into USD/JPY trading. While Trump lacks clear legal authority to remove Fed governors, the announcement unnerved investors, who viewed it as a direct challenge to the central bank’s independence. This comes as Fed Chair Jerome Powell’s Jackson Hole speech hinted at possible September rate cuts, citing labor market weakness even as inflation remains above target. Futures markets are now pricing in an 86% probability of a 25bps cut in September and an additional cut by December. The dollar index slipped toward 98.4 on these developments, and USD/JPY retreated from highs near ¥148.77 to trade just above ¥147.00.
Bank of Japan Shifts Toward Policy Normalization
The Japanese yen gained momentum after BOJ Governor Kazuo Ueda suggested conditions for another rate hike are improving. With wage hikes spreading from large firms to SMEs and core inflation holding at 3.1% YoY—well above the BOJ’s 2% target—investors are increasingly expecting a rate increase later this year. Market pricing suggests a 45% probability of a 25bps hike at the September meeting, while the October meeting remains the key focus for traders. These expectations add downside risk to USD/JPY, especially if U.S. yields soften further on Fed rate cuts.
Technical Levels Define USD/JPY Range Trading
From a technical standpoint, USD/JPY remains trapped in a well-defined consolidation band. The pair has found strong support around ¥146.20–¥146.50 while resistance continues to cap at ¥148.50–¥149.00. A breakout above ¥148.77 would bring the August peak at ¥150.91 into focus, followed by the March top at ¥151.30 and the February high at ¥154.79. On the downside, failure to defend ¥146.20 risks a drop toward ¥145.85 and potentially the deeper support zone around ¥142.10–¥142.67. The RSI at 51 reflects neutral momentum, while compressed candlestick ranges point to an imminent breakout. The daily chart’s symmetrical triangle suggests a decisive move is building, likely triggered by upcoming PCE inflation data.
COT and Positioning Point to Yen Strength
Futures market data confirms a shift in positioning that could favor the yen. The latest COT report shows speculators trimming short yen positions while adding to longs, nudging net positioning away from bearish extremes. This gradual repositioning supports the idea that downside in USD/JPY may open in the weeks ahead if U.S. economic data continues to underperform. A move back toward ¥144 or even ¥140 cannot be excluded if Fed cuts coincide with a BOJ hike.
Macro Drivers: Inflation, Confidence, and Durable Goods
Macroeconomic data continues to influence intraday swings. U.S. durable goods orders contracted by 2.8% in July, worse than the expected 4% decline, while consumer confidence fell to 97.4. Meanwhile, housing indices remained flat, underscoring a slowing economic backdrop. On Friday, the Fed’s preferred inflation gauge—PCE—will be critical. A hot print could revive dollar demand and push USD/JPY back above ¥148.50, while a softer outcome may accelerate yen gains and test support at ¥146.00. Traders also await Japan’s core CPI release and BOJ commentary, both of which could reinforce hawkish bets.
Short-Term Market Sentiment and Strategy
Intraday, USD/JPY is consolidating around ¥147.50, with traders cautious ahead of the inflation data. The hourly chart highlights resistance zones at ¥148.07–¥148.26 and ¥148.50–¥148.60, where bears may re-enter. A failure to clear these levels opens the door to a retest of ¥147.40 and potentially ¥146.50. Conversely, a breakout above ¥148.77 would shift momentum to the bulls, targeting ¥150.00 and beyond. Market sentiment remains fragile, and headlines around Trump’s feud with the Fed add another unpredictable layer to price action.
Buy, Sell, or Hold Verdict on USD/JPY
Given the convergence of factors—the Fed credibility crisis, U.S. data softening, BOJ hawkish tilt, and positioning shifts—the balance of risks is tilting bearish for USD/JPY in the medium term. While short-term rebounds toward ¥148.50–¥149.00 remain possible, sustained upside looks capped without a hawkish surprise from the Fed. A move below ¥146.00 would confirm the downside bias and expose deeper retracements. For now, the risk-reward profile favors a Sell stance on USD/JPY, with the potential for ¥144 and even ¥140 to come into play before year-end if BOJ delivers on tightening while the Fed moves toward easing.
