Japanese Yen slide deepens against firm USD as traders turn their attention to upcoming Fed, BoJ policy meetings

USD/JPY extends its rebound from a one-month low as renewed USD demand provides support.
Fresh direction hinges on the Fed and BoJ meetings, alongside major US economic releases.
Further upside appears supported by a fundamental outlook that favours the bulls.

A cautiously positive tone keeps USD/JPY on course for a third consecutive day of gains on Tuesday, although traders appear reluctant to commit ahead of major central bank events. The pair is extending its recovery from last week’s low near 156.00, its weakest level in over a month. Follow-through buying in spot prices remains limited, however, with the pair trading near 157.70, just over 0.10% higher on the day.

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

While the US Federal Reserve (Fed) will announce its decision on Wednesday after a two-day policy meeting, attention will centre on the accompanying rate statement and Fed Chair Kevin Warsh’s remarks at the subsequent press conference. Thursday then brings the Advance US Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index, which will shape expectations for the Fed’s policy trajectory. Those expectations, in turn, will influence the US Dollar (USD) and give USD/JPY fresh direction before Friday’s crucial Bank of Japan (BoJ) policy announcement.

For now, the Japanese Yen (JPY) remains under pressure as expectations that the BoJ may refrain from aggressive rate increases sustain the so-called carry trade. By contrast, the USD is drawing follow-through buying for a third consecutive day. Markets increasingly accept that the US central bank will retain its hawkish stance as elevated energy prices stoke inflation concerns. Tensions in the Middle East also keep the geopolitical risk premium in place, providing further support to the safe-haven Greenback and strengthening the case for additional USD/JPY gains.

What does the USD/JPY 4-hour chart show?

Technical Analysis: Can USD/JPY Clear Resistance?

Upside in USD/JPY remains constrained, with the pair trading beneath the 200-period Exponential Moving Average (EMA) at 157.81. Initial support lies close by at the 23.6% Fibonacci retracement of 157.63, marking the upper edge of a corrective pullback zone.

Below this, a more concentrated band of retracement support runs from the 38.2% level at 156.74 to the 50.0% level at 156.02. Further support sits at 155.30 and 154.28. A move above the 200-period EMA at 157.81, meanwhile, would bring the cycle high near 159.07 into view. The pair would need to regain that high to alleviate the prevailing bearish bias.

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

Bank of Japan: Frequently Asked Questions

What role does the Bank of Japan play?

As Japan’s central bank, the Bank of Japan (BoJ) determines the country’s monetary policy. It is mandated to issue banknotes and manage currency and monetary conditions to maintain price stability, with an inflation target of around 2%.

How has the Bank of Japan’s policy evolved?

Against a backdrop of low inflation, the Bank of Japan adopted an ultra-loose monetary policy in 2013 to support economic activity and lift price growth. Underpinning this approach is Quantitative and Qualitative Easing (QQE), which involves printing banknotes to purchase assets, including government and corporate bonds, and inject liquidity. The bank reinforced this approach in 2016, easing policy further by introducing negative interest rates before moving to direct control of its 10-year government bond yield. A rate increase in March 2024 marked the BoJ’s effective retreat from its ultra-loose monetary stance.

How does Bank of Japan policy affect the Japanese Yen?

The Yen weakened against its major currency peers as a result of the Bank’s substantial stimulus. That depreciation intensified in 2022 and 2023 as the policy gap widened between the Bank of Japan and other leading central banks. Those banks raised interest rates sharply to tackle inflation at multi-decade highs. The BoJ’s approach widened interest rate differentials with other currencies, weighing on the Yen’s value. In 2024, this trend reversed in part after the BoJ chose to move away from its ultra-loose policy stance.

What prompted the Bank of Japan to begin withdrawing its ultra-loose policy?

Japanese inflation rose above the BoJ’s 2% target as the Yen weakened and global energy prices surged. Expectations of higher domestic wages, a key driver of inflation, also helped prompt the policy shift.