USD/JPY forecast: Yen strengthens as dollar faces increased shutdown risks

• USD/JPY forecast still neutral, but risks skewed towards yen strength
• US government shutdown fears and softer dollar sentiment dominate
• Key macro focus on US jobs market this week, with JOLTs job data today

 

The USD/JPY has come under pressure this week, slipping below the 148.00 handle with the yen emerging as one of the strongest performers across FX market. The latest leg lower has been fuelled in part by falling US bond yields relative to Japanese, while a slide in oil prices, which tends to benefit energy importers like Japan, has also helped to support the yen. On top of this you have political risk from Washington over a potential US government shutdown, keeping the dollar under pressure across the board. The USD/JPY forecast could turn more negative should this week’s US job market data come in on the weaker side, with traders also keeping a close eye on a short-term pivotal level around 147.50.

 

Dollar faces shutdown risk and data uncertainty

 

The US dollar has been edging lower ahead of the JOLTs job openings release, with traders keeping one eye on the budget standoff in Washington. Vice President JD Vance and President Trump both signalled that a shutdown is increasingly likely. That matters for FX markets because a closure would delay the release of critical jobs data this week, leaving the Fed flying blind on the labour market.

 

Rate expectations have already shifted. Traders are pricing around two rate cuts by year-end and over 100 basis points by 2026. This is still slightly less than what markets expected earlier this month. That repricing reflects a tug-of-war between an improving near-term US data pulse and lingering doubts over labour market strength. The means that the risks are tilted to further downside for the dollar in the event of data disappointment this week.

 

For today, JOLTs job openings and CB consumer confidence numbers are in focus. Both have scope to move the dollar, especially given the small gap between current market pricing and the Fed’s dot plot projections. Job openings have disappointed expectations in the last couple of months and this time it is expected to show a similar reading to the previous 7.18m print. Anything lower could fan concerns about the labour market. In as far as consumer sentiment is concerned, well this is expected to have moderated to 96.0 from last month’s above-forecast print of 97.4.  

 

 

 

USD/JPY forecast: Yen finds tailwinds

 

While the dollar struggles, the yen is quietly gaining across the board. The GBP/JPY, for example, has slipped below 199.00 after failing to hold the psychological 200.00 level and amid budget uncertainty in the UK, while the CAD/JPY is under pressure as oil prices extend their slide since the start of the week. What’s more, the Bank of Japan has signalled it’s edging toward tightening, while the Fed is moving in the opposite direction with cuts already in play. That means bond yield differential could narrow further in the favour of the yen, reinforcing a bearish USD/JPY forecast.

 

Technical USD/JPY forecast and levels to watch

 

 

From a technical perspective, the USD/JPY forecast looks neutral but with growing risks to the downside. The pair has been choppy for months—flat in June, higher in July, lower in August, and then bouncing in early September. Recently, however, sellers have regained the upper hand, threatening to end a four-week winning streak.

 

The key level to watch is 147.50. A break below here could spark a wave of stop-loss selling, potentially opening the path towards 147.00, 146.30, and possibly 145.50 in the near-term. On the flip side, immediate resistance is layered between 148.50–148.65, followed by 149.10, 149.40, and the big psychological 150.00.

 

At this stage, the bias leans cautiously bearish given the macro backdrop, but traders should watch incoming US non-farm jobs data (if not delayed by the shutdown) to confirm momentum.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R