Japanese Yen remains range-bound against USD ahead of next week’s Fed, BoJ meetings

USD/JPY remains unable to build meaningful momentum as conflicting fundamental signals leave the pair without clear direction.
JPY bulls remain cautious as the timing of the BoJ's next interest rate increase stays uncertain.
The USD faces pressure from lower US bond yields, but geopolitical risks and a hawkish Fed help contain its losses.

Range-bound trading persists in USD/JPY as opposing forces keep the pair steady above 158.00 in Thursday's Asian session. This extends the consolidation seen since the start of the month. With key central bank events due next week, traders appear reluctant to take aggressive directional positions and are choosing to remain on the sidelines.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Next week's policy calendar begins with the US Federal Reserve (Fed), which is due to announce its interest rate decision on October 28 at the close of a two-day monetary policy meeting. The closely watched Bank of Japan (BoJ) meeting follows on October 29-30. Until then, a substantial US-Japan yield gap and the BoJ's cautious approach continue to restrain Japanese Yen (JPY) bulls, supporting USD/JPY. People familiar with the matter recently indicated that BoJ officials were inclined to avoid a rare back-to-back interest rate increase this month.

However, another rate increase could come as early as December, BoJ Governor Kazuo Ueda signalled earlier this week, saying that underlying inflation was quite close to the central bank's 2% target. His comments, together with speculation about intervention by Japanese authorities to support the domestic currency, discourage aggressive bearish positions in the JPY. At the same time, declining US bond yields leave the US Dollar (USD) hovering near the three-week low reached on Tuesday. That weakness further restricts the scope for a meaningful advance in USD/JPY.

Further USD declines are nevertheless being contained by growing acceptance that the US central bank will increase borrowing costs again, as volatile oil prices fuel inflation concerns. Fears of a further escalation in Middle East tensions also sustain the geopolitical risk premium, lending additional support to the safe-haven US currency and cushioning USD/JPY against losses. A convincing breakout from the short-term trading range would therefore be prudent to await before positioning for the next directional move.

USD/JPY: daily price chart

Technical Analysis: Can USD/JPY Clear Its Overhead Barriers?

Rallies in USD/JPY remain vulnerable while the pair trades beneath two overhead barriers: the 100-day Simple Moving Average (SMA) at 159.39 and the midpoint 50.0% Fibonacci retracement at 158.48 of the latest move between 152.91 and 164.06. Spot prices currently remain below both levels.

Clearing these barriers, however, should allow further gains towards the 61.8% Fibo. level at 159.80. Beyond that, resistance stands at 161.67, followed by the recent high near 164.06. If the pair declines, initial support lies at the 38.2% retracement of 157.17, with further protection at 155.54 and the structural base around 152.91. A break below that base would leave room for a sharper correction.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Japanese Yen: Frequently Asked Questions

Which factors are the main drivers of the Japanese Yen?

Among the world's most actively traded currencies, the Japanese Yen (JPY) broadly reflects the performance of Japan's economy. More specific influences include Bank of Japan policy, the gap between Japanese and US bond yields, and traders' appetite for risk, alongside other factors.

Why do Bank of Japan policy decisions matter for the Japanese Yen?

Currency control forms part of the Bank of Japan's mandate, making its actions an important influence on the Yen. On occasion, the BoJ has intervened directly in foreign exchange markets, usually to weaken the currency. Such interventions are infrequent, however, because of political concerns among Japan's main trading partners. Between 2013 and 2024, the BoJ's ultra-loose monetary policy weakened the Yen against its major peers as the policy gap between the Bank of Japan and other leading central banks widened. More recently, a gradual withdrawal of this ultra-loose stance has provided some support to the Yen.

What does the US-Japan bond yield gap mean for the Japanese Yen?

By maintaining ultra-loose monetary policy over the past decade, the BoJ moved increasingly out of step with other central banks, especially the US Federal Reserve. This helped widen the yield gap between 10-year US and Japanese bonds, benefiting the US Dollar relative to the Japanese Yen. That gap is now narrowing as the BoJ implements its 2024 decision to move gradually away from ultra-loose policy, while other major central banks cut interest rates.

Why does wider market risk sentiment affect the Japanese Yen?

Investors often regard the Japanese Yen as a safe-haven asset, making them more likely to move money into the currency during periods of market stress because of its perceived reliability and stability. In turbulent conditions, the Yen is therefore likely to appreciate against currencies considered riskier investments.