Japanese Yen Forecast: USD/JPY climbs as yields take charge after Powell’s pivot

• Government shutdown delays key U.S. data, limiting Fed visibility
• ISM services PMI and ADP jobs in focus Wednesday
• Wages data key for Japan’s December BOJ decision
• USD/JPY bullish bias retained

Summary

USD/JPY remains led by U.S. yields, with Powell’s pushback on rate cuts keeping the dollar supported. With key data missing due to the shutdown, Fed commentary and private surveys will set the next move, while bulls hold control above key support.

Powell Pivot Sparks Rates Revival

The U.S. interest rate outlook is back in the driver’s seat for USD/JPY after the surprise hawkish shift from Fed chair Jerome Powell following last week’s FOMC decision. The chart below tells the story, with the left-hand pane showing how USD/JPY has been tracking U.S. two-year Treasury yields in recent weeks. It’s clear both have moved in near lockstep, confirmed by the strength of the rolling five-day correlation coefficient in the middle pane. From top to bottom, it shows pricing for Fed rate cuts out to December 2026, two- and ten-year Treasury yields, Nasdaq futures and VIX futures, with the right-hand pane showing monthly correlation scores for the same markets.

Source: TradingView

While the once strong link between USD/JPY and U.S. stock futures or implied volatility has flipped—showing risk appetite has not been driving the pair recently—the relationship with the U.S. rate curve has strengthened sharply, producing correlation readings from -0.82 to as high as 0.93 over the past week, strongest with ten-year yields. The relationship hasn’t been as firm over the past month, but it has been strengthening, placing even greater emphasis on events that could shift the U.S. rate outlook for anyone trading USD/JPY.

ISM, ADP, Refunding Key U.S. Events

With the U.S. government shutdown still unresolved, markets are again being starved of key data, including a swathe of jobs figures that were due this week such as October non-farm payrolls. In their absence, traders will turn to private surveys and speeches from Fed officials to guide direction. The calendar below has been colour-coded to highlight the most important risk events, with red-shaded items marking those with the highest potential to move USD/JPY.

Source: TradingView

Wednesday looms as the pivotal day, with the ADP National Employment Report and ISM services PMI both in the red category. While some question the reliability of ADP’s signal, it has generally been a decent lead indicator once the official figures are revised. The ISM services report—offering a near real-time view on activity, prices and orders in the largest part of the economy—now carries even greater weight with no official data available.

Events shaded in yellow may still spark volatility, including the ISM manufacturing PMI on Monday. Although manufacturing is a smaller part of the economy, this survey still draws attention, so keep an eye out for any sudden shifts in demand or prices. The Treasury’s quarterly refunding announcements on Monday and Wednesday also deserve close monitoring, given they include borrowing estimates for the current and next quarter along with the intended maturity mix of debt issuance. These details have influenced yields before, and with USD/JPY now so closely tied to the U.S. curve, this release is important.

When Treasury last estimated borrowing needs for Q4, the figure stood at $590 billion. Keep that in mind with the shutdown ongoing. Details on issuance amounts and maturities arrive Wednesday. It seems unlikely Treasury will term out debt issuance given yields remain elevated—especially with the Fed’s quantitative tightening set to end in early December, when proceeds from maturing holdings will be reinvested into short-term debt. Expect a continued flood of Treasury bill issuance at the front of the curve. Details on prior debt issuance are found in the graphic below.

Source: U.S. Treasury

Beyond data and refunding updates, keep an ear out for comments from Fed officials, including influential New York president John Williams later in the week. Powell’s assertion that a December rate cut was “far from” a foregone conclusion suggests several FOMC members were not far off joining Kansas City’s Jeffrey Schmid in voting to keep rates unchanged in October. Any hint that policymakers are reluctant to deliver the more than 80 basis points of cuts priced by markets for next year could see yields lift across the curve—particularly if echoed by multiple members.

Source: TradingView

Japan Wages Data in Focus

In Japan, a few releases also warrant attention even if it’s the U.S. rate outlook that’s been steering USD/JPY. Wages data due Thursday will be key, with any sign of strengthening likely to raise the odds of a BOJ hike in December, especially after last week’s hotter Tokyo inflation print. Household spending data on Friday will also be watched closely, as the BOJ looks for evidence that domestic demand is improving, reducing spare capacity and supporting wage growth. As the largest component of Japan’s economy, consumption remains a vital piece of the puzzle.

USD/JPY: Bulls in Control

Source: TradingView

Sitting in an established uptrend with momentum indicators continuing to generate bullish signals, the preference remains to continue buying dips and bullish breaks in USD/JPY as we approach the new week.

There’s not much to dislike for bulls on the daily chart, with the pair breaking out above 153.28 resistance late last week, helped by dovish commentary from BOJ Governor Ueda. That level may now flip to provide support. Having twice bounced off the uptrend running from the October 2 lows, that trendline has been validated as support, providing two potential zones for bulls to establish fresh long positions should the price pull back towards either.

With the pair now firmly above the 200-day moving average and its 50-day equivalent sloping higher, the case remains stronger for upside than downside. The RSI (14) continues to trend higher above 50, pointing to building topside pressure, while MACD confirmed the signal with a bullish crossover late last month. None of these signals rules out near-term downside, but the broader message remains bullish for now.

Resistance levels sit at 154.45, 154.80, 156.50 and 158.88, with support at 153.28, the October uptrend and 151.00 below.