USD/JPY forecast: Fed, BoJ and US-China talk in focus | Currency Pair of the Week

Along with index futures and other risk assets, the USD/JPY started the new week on the front foot after last week’s decent gains, before easing off its best levels as the greenback continued to fall against other currencies, especially risk sensitive ones such as the Aussie dollar. This week promises to be a big one for financial markets with key central bank rate decisions, US-China trade talks and technology company earnings all to come. For now, the USD/JPY forecast has not turned bearish despite the greenback’s struggles against other currencies, all thanks to expectations that the new Japanese government will pursue an expansionary fiscal policy. But will the Bank of Japan try to counter that with a faster policy normalisation? Clues on that is what investors will want to find out from the BoJ’s policy meeting this week. Meanwhile the US Federal Reserve is fully expected to cut rates but if they appear to be more dovish than expected then this could provide a bearish trigger for the dollar.

 

Dollar faces key test this week

 

Risk assets kicked off the week on a positive note overnight, buoyed by weekend chatter suggesting that Washington and Beijing may finally be finding some common ground. Reports hint at progress on several fronts — including the sale of TikTok, increased soybean purchases, and tariff adjustments. All eyes now turn to Thursday’s meeting between US President Donald Trump and Chinese President Xi Jinping, which could see these tentative understandings formalised. Markets would certainly welcome any delay to the heavy tariff measures first floated back in April.

 

Perhaps the most significant wildcard is China’s stance on export controls of rare earth elements. A postponement of even a year would go down very well with investors, given the global dependency on these materials for advanced manufacturing.

 

Should the Trump–Xi summit deliver on these bullish expectations, the dollar may find itself under modest downward pressure. That said, it’s also a packed week for central banks, with policy meetings due in the US, eurozone, Japan, and Canada. The Federal Reserve is widely expected to trim rates by another 25 basis points. This time, though, positioning in the dollar is more balanced than it was in September, meaning any reaction to dovish commentary from Chair Jerome Powell could be contained. Last week’s softer September CPI data further dampens the likelihood of any hawkish surprises.

 

Meanwhile, the ongoing US government shutdown continues to muddy the waters. With official data releases scarce, the focus shifts to the political theatre in Washington. Betting markets now put the odds of the shutdown lasting beyond 16 November at roughly 49%. A more immediate concern looms on 15 November, when, according to Scott Bessent, the US military could go unpaid if the stalemate drags on. The lack of official data also means the release of third-quarter GDP may be delayed — a pity, as consensus had been looking for a respectable 3.0% annualised gain.

 

 

Bank of Japan likely to stay on hold – for now

 

The yen remains under gentle pressure, with Prime Minister Sanae Takaichi’s expected policy direction viewed as negative for the currency. There’s growing political weight on the Bank of Japan to keep rates low, and markets now assign only a 10% chance of a rate hike at Thursday’s BoJ meeting. Despite divisions within the board, the consensus view appears to be one of patience rather than haste, especially in light of the fiscal dove Takaichi winning a historic vote to become Japan's first female PM. Inflation remains comfortably above target at 2.9%, while the broader economy continues to weather the impact of US tariffs with surprising resilience. This backdrop should, in theory, support the BoJ’s gradual move towards normalisation of policy. However, policymakers remain wary of tightening too soon and snuffing out momentum. A December rate hike, therefore, looks increasingly plausible, particularly if inflation holds firm. The USD/JPY may end up staying above 150.00 unless the BoJ delivers a surprise hike or is very hawkish about future policy this week.

 

Technical USD/JPY forecast: Key levels to watch

 

The USD/JPY is among a few US major pairs that still have a bullish technical bias attached to it. But as the US dollar becomes increasingly bearish against other major currencies, soon it may also turn against the yen.

 

Therefore, it is imperative to watch price action closely and monitor key levels, constantly asking yourself questions like: Are support levels being defended where they need to be? Are resistance levels holding? Is price making lower lows and lower high?

 

Much of these questions are relevant for a bearish trend, which of course has not been the case for the USD/JPY until now. The only thing that might be slightly bearish-leaning is the fact that rates have held below prior resistance around 153.20 - 153.30 area for now.

 

 

But there are plenty of support levels on the USD/JPY chart that could now turn into support. Among them, you have the 152.00-152.15 area, which was previously resistance. Below that 150.90-151.20 is the next big zone to watch, followed by 150.00.

 

Meanwhile, if the above-mentioned 153.20 - 153.30 area breaks, then 155.00 could be the next potential upside target.

 

Taking everything into account…

 

In short, the technical bias leans slightly bullish for the USD/JPY forecast but given the dollar’s performance against other major currencies this makes us doubtful that the UJ will be able to retain a bullish basis much longer unless sentiment towards the US dollar changes significantly bullish. We can’t see that happening, which puts us on the lookout for a bearish reversal to emerge on the USD/JPY soon.

 

For now, it’s hard to see what might trigger a sustained move lower in USD/JPY without a broader dollar decline. Still, Japanese policymakers will be keeping a close eye on the exchange rate — and they’ve shown a willingness to step in before. Should USD/JPY push into the 155–160 range, intervention to sell dollars and prop up the yen becomes a realistic prospect.

 

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R