The USD/JPY pair is currently trading at 152.80, marking six consecutive days of gains as the yen continues to weaken against a strengthening dollar. The market momentum continues to exhibit strength following a short-lived retreat beneath the ¥153.26 resistance, a critical threshold monitored closely since the recent intervention efforts by the Bank of Japan. Market participants are strategically aligning themselves in this area in anticipation of significant monetary policy announcements from the Federal Reserve and the Bank of Japan, with heightened volatility anticipated in the upcoming week. The dollar’s dominance persists, driven by expanding yield differentials, with U.S. 10-year Treasury yields lingering around 4.65%, sustaining a significant advantage over Japan’s nearly zero rates. The strength of the dollar was underpinned by robust economic data from the U.S. The S&P Global Flash Composite PMI increased to 54.8 in October, rising from 53.9 in September, indicating the quickest private-sector growth in three months. The Services PMI increased to 55.2, and the Manufacturing PMI edged up to 52.2, indicating broad-based growth across sectors. Despite the U.S. CPI decreasing to 0.3% month-on-month, which is below the anticipated 0.4%, the annual inflation rate remains at 3.0%, prompting the Fed to maintain a cautious stance. Market participants are expecting a rate cut at the October 29–30 meeting; however, the strength in business activity indicates that monetary easing might occur at a more gradual rate than previously anticipated.
In Japan, inflation persists in its upward trajectory yet does not strengthen the yen. The core CPI increased to 2.9% in September, rising from 2.7% in August, marking a level not observed in decades. However, projections for additional tightening by the Bank of Japan continue to be subdued. Prime Minister Sanae Takaichi’s administration has indicated the possibility of a new fiscal stimulus program designed to address the cost-of-living crisis, potentially involving tax reductions on gasoline and income. Finance Minister Katayama recognized the potential necessity for further bond issuance, which has sparked market apprehensions regarding fiscal discipline. HSBC analysts contend that fiscal expansion may postpone BoJ normalization until 2026, potentially undermining yen strength despite inflation remaining close to 3%.
The USD/JPY pair has experienced a notable increase of 4.4% from the monthly low, establishing a six-day rally that is currently challenging the upper boundary of an ascending pitchfork pattern. The immediate resistance is identified between ¥153.08 and ¥153.27, a zone where price action has consistently encountered obstacles. A daily close above this threshold would pave the way to ¥153.83, subsequently leading to ¥154.82, which represents the 78.6% retracement of the 2025 range. An additional extension aims for ¥156.26–¥156.29, corresponding with the 1.618% Fibonacci expansion derived from April’s progression. On the downside, initial support is positioned at ¥151.63–¥151.95, while more substantial support can be found around ¥150.88, which corresponds to the August high and the 100% extension of the April rally. Should there be a breach beneath this area, it would suggest the likelihood of a corrective retracement towards ¥149.80. Despite the current momentum supporting the dollar, valuation models from leading financial institutions, such as HSBC, suggest that USD/JPY is overvalued beyond ¥152. This indicates a possible retracement towards the mid-147 range should there be a shift in global risk sentiment. Market participants are closely monitoring the potential for intervention by the Ministry of Finance, akin to the strategies implemented during the yen defense efforts in 2022 and 2024. However, Japan’s increasing fiscal obligations undermine the credibility of substantial interventions. The government’s capacity to prevent yen depreciation is limited, especially with the likelihood of new debt issuance and restricted flexibility in foreign reserves.
At the current ¥152.80 level, USD/JPY is positioned just beneath significant resistance while maintaining bullish momentum, fueled by robust U.S. data and underwhelming Japanese fundamentals. Short-term targets are set at ¥153.80 and ¥156.20, with a possible extension to ¥158.00 contingent upon the Fed’s continued measured approach to rate cuts. A decisive break below ¥150.80 would indicate a shift to a neutral stance, with support around ¥149.00 serving as a deeper corrective target. Currently, the most straightforward trajectory appears to be upward, as yield differentials and fiscal divergence persist in supporting the dollar. The U.S. dollar continues to exhibit strength against the yen, bolstered by robust domestic data, constrained Bank of Japan tightening, and ongoing policy divergence. Unless Japan takes significant action or inflation prompts a sudden shift in policy, USD/JPY seems set to continue its upward trajectory towards multi-decade highs, strengthening the bullish outlook as we approach the end of 2025.