USD/JPY Price Slides to 146.56 as Fed and BoJ Decisions Set Up Breakout

USD/JPY Tests 146.50 as Fed and BoJ Shape Diverging Paths

The USD/JPY pair continues to slide, last trading near 146.56, its lowest level since early September, as markets digest diverging monetary policy expectations between Washington and Tokyo. A stronger yen has emerged for the second session in a row, driven by firm Japanese bond yields and positioning ahead of Friday’s Bank of Japan policy meeting. At the same time, the U.S. dollar has weakened broadly, with the DXY index dropping to 96.80, its weakest level since early July, as traders aggressively price in Federal Reserve rate cuts.

Fed Cut Bets Pressure the Dollar Despite Firm U.S. Data

Markets are nearly unanimous in expecting a 25-basis-point Fed cut on Wednesday, with traders more focused on Powell’s tone and the updated dot plot than on today’s U.S. economic releases. August retail sales and industrial production both exceeded forecasts, yet the dollar still slipped, a sign that easing expectations overshadow data resilience. The U.S. labor market continues to cool, and consumer sentiment has eroded, reinforcing bets on up to three cuts in 2025. Political shifts at the Fed, with Stephen Miran confirmed to the board and uncertainty around Governor Lisa Cook’s stance, add complexity to the policy outlook.

Japanese Political Shifts Add Volatility to Yen Outlook

The yen’s strength is not only policy-driven but also tied to domestic political changes. Prime Minister Shigeru Ishiba’s resignation has injected uncertainty into Japan’s leadership, with Shinjiro Koizumi emerging as a contender for LDP leadership. A new prime minister could influence how the BoJ manages its gradual exit from ultra-loose policy. While the BoJ is expected to keep its short-term rate at 0.50%, Governor Ueda may strike a more optimistic tone on the economy, offering a subtle hawkish tilt that supports yen demand.

USD/JPY Technical Structure Tilts Bearish

Technically, USD/JPY is trapped in a declining pattern. Resistance at 147.55 and 147.14 has capped upside attempts, while the drop below the 200-SMA at 147.14 has flipped that level into resistance. Multiple long upper wicks on candlestick charts signal heavy selling pressure at these resistance zones. Support levels to watch are 146.59, 146.00, and 145.51, the latter tested multiple times in August. With the RSI at 36, the pair is not yet oversold, suggesting further downside potential before buyers intervene. A decisive break under 146.00 could open the way toward the mid-145.00s, while recovery above 147.20 would neutralize the bearish setup.

Range-Bound Trading Since August Now at Risk of Breakout

Since early August, USD/JPY has held in a narrow 100-pip range, with false breakouts around the July Fed and BoJ decisions quickly snapped back by the August NFP report. That consolidation is now at risk of breaking. If the Fed signals fewer cuts than the market expects, a dollar rebound could trigger upside back toward 148.00, but a dovish Powell would accelerate the slide, leaving 145.50 exposed. This week’s Fed-BoJ doubleheader ensures the range will likely resolve into a stronger trend.

Cross-Currency Signals Highlight Yen Strength

The yen’s performance is also reflected in cross rates. EUR/JPY is shaping an ascending triangle above 172.30 with resistance at 175.00, showing euro strength against the yen but with clear breakout dynamics. GBP/JPY already breached the 200.00 level, turning that psychological barrier into new support. These moves underscore broader yen weakness across crosses, but in USD/JPY the dollar’s parallel decline has created a unique dynamic where two weak currencies offset each other, keeping the pair compressed until policy divergence forces a direction.

Verdict: USD/JPY Bearish Bias, Sell on Rallies

Based on current technicals, macro policy paths, and political uncertainty, USD/JPY leans bearish. The market is primed for a break below 146.00, with downside toward 145.50 and potentially 144.00 if dovish Fed guidance aligns with a steadier BoJ. Any rebounds toward 147.20–147.55 should be treated as selling opportunities unless Powell surprises with a hawkish tilt. The bias into this week’s dual central bank events favors the yen, making USD/JPY a Sell on rallies until stronger U.S. data or Fed resistance to cuts reverses sentiment.

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