- USD/JPY forecast points to further downside as political gridlock weighs on the dollar
- US government shutdown delays key jobs data, adding to uncertainty
- Yen strength supported by lower US yields and potential BoJ shift
The dollar has come under renewed pressure this week, with the yen standing out as one of the strongest performers across FX markets. Falling US bond yields and sliding oil prices – often supportive for energy importers like Japan – have helped the yen, but the real driver has been Washington’s government shutdown. With little sign of a quick resolution, markets are bracing for a prolonged standoff that could dent consumer confidence and heighten worries over employment security. For this reason, the USD/JPY forecast will likely remain modestly bearish.
Dollar weighed down by politics and data risks
The US dollar has been slipping steadily as traders focus on the budget deadlock in Washington. The shutdown, while anticipated, has real consequences—most notably the delay in releasing key labour market data. With the Fed now effectively flying blind on employment, any near-term recovery attempts in the dollar may be short-lived.
Rate expectations have already shifted, with markets pricing in around two cuts by year-end and over 100 basis points by 2026. That repricing reflects a mix of stronger near-term data and ongoing doubts about labour market. If upcoming figures disappoint, the downside risks for the dollar remain significant.
Data calendar disrupted
While ADP private payrolls and ISM manufacturing are still expected today, weekly jobless claims and September’s nonfarm payrolls will likely be postponed. The ADP report is forecast at +50K, in line with the prior month, while ISM manufacturing is expected to stay just under 50.0. Softer consumer confidence and weak Chicago PMI data earlier this week have already added pressure on the dollar, underscoring how fragile sentiment has become.
Yen gathers strength
The yen is emerging as the clearest beneficiary of the turmoil. The USD/JPY has already fallen to the 147.00 handle, and with Democrats and Republicans showing little appetite for compromise, the stalemate could last. If prolonged, layoffs and distorted payroll figures could further weigh on sentiment, reinforcing the bearish tilt in USD/JPY forecast.
Beyond US politics, the broader picture also favours the yen. The likes of the GBP/JPY and CAD/JPY have come under pressure, and with the Bank of Japan signalling a slow shift toward tightening while the Fed heads toward rate cuts, narrowing yield differentials could keep the yen supported.
USD/JPY forecast: Technical outlook
Technically, USD/JPY forecast has turned bearish after a choppy summer. Sellers have broken through the most recent low of around 147.50, triggering stop-loss flows and reaching the first downside target at 147.00. Sustained trading below 147.50 on the USD/JPY chart could pave the way towards 146.30, 146.00, and potentially 145.00 in the near term. On the upside, resistance now sits at 147.50, then 148.50–148.65, with the big psychological 150.00 above.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
