USD/JPY Rally Unravels as Fed Still Forecasts Lower US Interest Rates

US Dollar Outlook: USD/JPY

USD/JPY gives back the rally from the start of the week as the Federal Reserve still plan to further unwind its restrictive policy in 2025.

USD/JPY Rally Unravels as Fed Still Forecasts Lower US Interest Rates

Keep in mind, USD/JPY showed a limited reaction to the Bank of Japan (BoJ) meeting as Governor Kazuo Ueda and Co. held the benchmark interest rate at 0.50%, and it seems as though the central bank remains reluctant to carry out a rate-hike cycle as ‘underlying CPI inflation is expected to increase gradually.’

Join David Song for the Weekly Fundamental Market Outlook webinar.

David provides a market overview and takes questions in real-time. Register Here

Federal Reserve Summary of Economic Projections (SEP)

Source: FOMC

Nevertheless, USD/JPY may struggle to retain the advance from the monthly low (146.54) as it snaps the recent series of higher highs and lows, and swings in the carry trade may continue to sway USD/JPY as the Fed’s Summary of Economic Projections (SEP) shows that the ‘median participant projects that the appropriate level of the federal fund rate will be 3.9% at the end of this year.’

The fresh forecasts from Fed officials suggest the central bank will continue to pursue neutral stance despite the ongoing change in US trade policy, but it seems as though the Federal Open Market Committee (FOMC) will stick to the sidelines at its next meeting in May as Chairman Jerome Powell reiterates that ‘we do not need to be to be in a hurry to adjust our policy.’

With that said, USD/JPY may consolidate over the remainder of the week as it pulls back ahead of the monthly high (151.31), but the exchange rate may track the negative slope in the 50-Day SMA (152.32) as it holds below the moving average.

USD/JPY Price Chart – Daily

Chart Prepared by David Song, Senior Strategist; USD/JPY on TradingView

USD/JPY struggles to push above the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone as it snaps the recent series of higher highs and lows, and failure to defend the monthly low (146.54) may push the exchange rate towards the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) region.
Next area of interest coming in around the October low (142.97), but the recent pullback in USD/JPY may turn out to be temporary should the exchange rate defend the weekly low (148.26).
Need a break/close above the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone to bring 151.95 (2022 high) back on the radar, with the next region of interest coming in around 153.80 (23.6% Fibonacci retracement).

Additional Market Outlooks

Gold Price Rally Pushes RSI Back into Overbought Territory

British Pound Forecast: GBP/USD Vulnerable to Dovish Bank of England (BoE)

Canadian Dollar Forecast: USD/CAD Coils Ahead of Reciprocal Trump Tariffs

EUR/USD Rebounds Ahead of Weekly Low to Keep RSI in Overbought Zone

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.