USD/JPY Update: Yen Plunges After Federal Reserve Minutes Release

During today’s trading session, the USD/JPY recorded a gain of more than 1.00%, exceeding the average of the past five trading days. This reflects continued weakness in the Japanese yen and persistent strength in the U.S. dollar in the short term. The buying pressure, which had already been consolidating in recent sessions, intensified after the release of the Federal Reserve minutes and this suggests a possible neutral stance on interest rates for December. This shift has made the yen less attractive compared to the dollar and could sustain dominant buying pressure on USD/JPY in the coming sessions.

Federal Reserve Minutes Released

The minutes from the Federal Reserve’s latest policy meeting revealed broad internal divisions among committee members regarding the timing of potential future rate cuts. The document highlighted that inflation near 3% has once again become a significant concern, supporting the idea of keeping interest rates unchanged for the remainder of the year. Although several members favor eventual rate cuts, others believe it is too soon to adopt such a stance in the December meeting, as inflation remains too high to relax monetary policy in the short term.

While the September employment data has yet to be released, the minutes have significantly shifted market expectations for the Fed’s upcoming December 10 meeting. According to CME Group, the probability that the benchmark rate will remain at 4.00% has increased to 66.54%, while the likelihood of a rate cut to 3.75% has dropped to 33.46%, the lowest in a month. This marks a notable change in sentiment compared to market expectations from previous weeks.

Source: CMEGroup

Currently, a wide interest rate differential persists between the United States and Japan, with the Federal Reserve maintaining its rate at 4.00% and the Bank of Japan (BoJ) holding an ultra-loose policy with a 0.5% rate. If the Fed continues its high-rate policy, dollar-denominated assets will remain more attractive than those in yen, driving steady demand for the U.S. dollar and limiting the yen’s recovery. This context could sustain strong buying pressure on USD/JPY in the coming weeks.

 

The U.S. Dollar Begins to React

The strengthening of USD/JPY is not solely due to yen weakness but also to growing confidence in the U.S. dollar, following recent statements and the Fed minutes. The DXY index, which measures the dollar’s strength against a basket of global currencies, has maintained a steady bullish bias, trading above the 100-point level, a key reference zone. Throughout the day, the DXY has shown consistent growth, reflecting a renewed investor confidence in the U.S. dollar that is supported by expectations of sustained high interest rates, which could maintain stable demand for the currency in the medium term.

Source: TradingEconomics

This strengthening of the dollar suggests that a less favored currency in the current environment, such as the yen, could continue to lose ground against the U.S. dollar. As long as the DXY index remains above 100, the dollar’s dominance will likely limit the yen’s recovery, maintaining strong buying pressure on USD/JPY in the coming sessions.

 

USD/JPY Technical Outlook

Source: StoneX, Tradingview

• Aggressive Uptrend Emerging: Since April, the USD/JPY has maintained a steady upward trend, but since early October, the trendline has become steeper, forming an aggressive short-term uptrend. This movement confirms the dominant bullish bias in the technical outlook. So far, no significant bearish signals have emerged to threaten this structure, leaving the uptrend as the key technical formation to monitor. If buying pressure continues, the pair could retest the yearly highs, last seen in January.

 

• RSI: The RSI indicator continues to show a bullish bias, with readings above the 50 level, confirming that buying momentum remains dominant. However, the indicator has started approaching the 70 level, signaling a potential overbought condition that could lead to short-term technical corrections.

 

• TRIX: The TRIX indicator remains above the zero line, reflecting solid buying momentum across the exponential moving averages. If the line continues to rise, bullish pressure could remain relevant in the medium-term technical outlook for USD/JPY.

 

Key Levels to Watch:

• 158.207 – Key Resistance: Represents the year’s high and the most important bullish barrier for 2025. A sustained break above this level could solidify the bullish bias, keeping the accelerated uptrend active in USD/JPY.

 

• 155.073 – Nearby Barrier: A recent retracement area, considered the most relevant short-term support zone. It could act as a technical barrier against potential short-term pullbacks after the recent strong buying momentum.

 

• 153.300 – Main Support: Represents the most stable neutral zone of recent weeks. A move below this level could interrupt the current accelerated uptrend, though it would likely be insufficient to reverse the long-term bullish structure.

 

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25