USD/JPY is currently positioned around 155.35, marking a third consecutive session of gains as the Japanese Yen continues to face challenges in rebounding from its significant decline. The pair has reached a ten-month high after decisively surpassing the 155.00 psychological level, with resistance identified in the range of 155.50 to 156.00. This advance comes after a distinct separation between the Federal Reserve’s cautious strategy regarding easing and Japan’s persistent ultra-loose monetary policy. The yield spread between U.S. Treasuries and Japanese government bonds remains elevated, currently exceeding 360 basis points, reinforcing the Dollar’s strong position as traders realign their strategies ahead of the forthcoming U.S. NFP and FOMC minutes. The Dollar Index is positioned above 99.40, indicating a measured sense of optimism regarding U.S. economic resilience following robust manufacturing and construction data that exceeded expectations. The Empire State Manufacturing Index surged to its peak in a year, and August construction spending exceeded expectations, indicating strong economic activity despite the recent government shutdown. The recent data has dampened expectations for a December rate cut, with futures now indicating a probability of less than 40%, a significant decrease from over 60% earlier this month. Fed Governor Christopher Waller cautioned that rapid AI adoption might reduce labor demand, indicating that any policy easing would be contingent on forthcoming data. Markets continue to project approximately 75 basis points in cumulative cuts by the conclusion of 2026. Treasury yields are currently high, with the 10-year yield approximately at 4.46%, which strengthens the interest-rate differential that benefits the Dollar over the Yen.
The Bank of Japan remains steadfast in its approach, refraining from a complete shift towards tightening, despite inflation moderating to 2.6% year-on-year and Q3 GDP experiencing its first contraction in six quarters. Prime Minister Sanae Takaichi emphasized the necessity of maintaining low rates to protect growth, thereby limiting Governor Kazuo Ueda’s ability to pursue normalization. Fiscal strategies aimed at boosting consumption through specific tax reductions totaling ¥1.5 trillion place additional pressure on Japan’s long-term fiscal stability, thereby eroding confidence in the Yen. The Ministry of Finance’s verbal warnings regarding “one-sided” currency movements have had minimal impact on reversing market sentiment, as traders remain skeptical about the likelihood of immediate intervention. Thin liquidity periods, particularly during the Asian session, continue to be susceptible to sudden volatility should Tokyo intervene. The technical landscape indicates a persistent upward trend. The USD/JPY pair, currently at 155.35, continues to trade above all significant moving averages: the 15-day at 154.20, the 20-day at 153.70, and the 50-day at 152.10, establishing a pronounced ascending channel. Momentum oscillators indicate robust strength, with the RSI positioned at 66.4, remaining just below the overbought threshold. The MACD histogram is expanding, suggesting ongoing bullish momentum. A firm close above 156.00 may reveal the subsequent resistance at 157.40, a threshold last examined amid the 2022 yield-spread shock. On the downside, 154.50–154.45 serves as immediate support, with 153.60 following closely, where multiple EMAs converge. A decline beneath 153.50 would indicate potential short-term fatigue; however, the overall framework stays solid as long as 153.00 is maintained.
The S&P 500’s decline below 6,707 and the Nikkei 225’s slight 0.8% recovery indicate that global investors are adjusting their portfolios rather than seeking to reduce risk. Cross pairs amplify the trend: EUR/JPY is trading near 179.50, while GBP/JPY remains above 204.80, both indicating a consistent underperformance of the Yen across the market. The absence of inflows into JGBs, even in the face of U.S. volatility, highlights the attractiveness of the carry trade associated with the Dollar. This is especially evident as Japanese institutions persist in financing overseas assets to counteract the negative real yields domestically. Markets are preparing for the release of the U.S. September Nonfarm Payrolls on Thursday, marking the first significant dataset since the government resumed operations. Experts anticipate a decline from 170,000 to approximately 140,000, which may challenge Dollar momentum should labor weakness emerge. The upcoming FOMC minutes, scheduled for release on Wednesday, are expected to shed light on the internal disagreements regarding the timing of potential cuts. However, officials have repeatedly highlighted the ongoing persistence of inflation.
In Tokyo, Finance Minister Satsuki Katayama asserts that authorities will “monitor the market with high urgency.” However, historical trends indicate that intervention is likely only if USD/JPY surpasses the 156.50–157.00 range with significant volatility. Exceeding that threshold, algorithmic and retail positioning may increase volatility, rendering a short-term correction likely before the year’s end. Considering the macro divergence, robust technical momentum, and the delicate state of Japanese fundamentals, the outlook for USD/JPY is distinctly bullish. Short-term pullbacks toward 154.20 could present opportunities for accumulation, provided that risk appetite stabilizes. A confirmed daily close above 156.00 would aim for 157.40, with the possibility of extending to 158.10 by December if U.S. data exceeds expectations and BoJ policy stays the same. A coordinated intervention or an unexpected decline in U.S. employment is the only scenario that could alter the medium-term structure. Considering the current data, USD/JPY continues to be a Buy on dips, bolstered by yield spreads, policy divergence, and ongoing investor interest in Dollar carry positions.