USD/JPY Analysis and Forecast: Fed Rate Cut and BoJ Policy Signals Drive Yen Volatility

The US dollar came under pressure after the Federal Reserve cut interest rates for the third consecutive time by 25 basis points to a 3.75–3.50% range and resumed Treasury purchases totaling $40.0 billion. At the same time, the yen found support after Bank of Japan Governor Kazuo Ueda hinted at the possibility of tighter monetary policy, stating that officials would weigh all the pros and cons of raising borrowing costs at the upcoming meeting. This allowed USD/JPY to retreat toward the 154.95 area, although the downside move appears unstable, as the monetary policy outlook for both central banks remains uncertain for next year.

It is worth noting that in his accompanying remarks, Fed Chair Jerome Powell explicitly pointed to the possibility of maintaining current policy settings in order to assess the economic impact of measures already taken. Updated projections also confirmed the likelihood of only one additional rate cut during 2026. On the other hand, even if the Bank of Japan raises interest rates at its next meeting, it may refrain from further adjustments for an extended period amid weakening economic indicators. Inflation remains above the BoJ’s 2.0% target, standing at 3.0% in October, while GDP contracted by 0.6% quarter-on-quarter and 1.8% year-on-year in the third quarter, making further monetary tightening less compelling.

Support and resistance levels

Prices have resumed growth within the ascending channel. A consolidation above 156.25 (Murray level [8/8]), reinforced by the middle Bollinger Band, would open the way for further gains toward 158.35 (Fibonacci retracement 100.00%) and 162.50 (Murray level [8/8], W1). A downside break below the reversal level at 153.12 (Murray level [6/8]) could trigger a renewed decline toward 150.00 (Murray level [4/8], Fibonacci retracement 50.0%) and 146.88 (Murray level [2/8]).

Technical indicators continue to point to an ongoing uptrend: Bollinger Bands are sloping upward, MACD remains stable in positive territory, while the Stochastic oscillator is turning lower, suggesting a potential corrective pullback, although its downside potential appears limited.

Resistance levels: 156.25, 158.35, 162.50.

Support levels: 153.12, 150.00, 146.88.

Trading scenarios and USD/JPY outlook

Long positions can be considered above 156.25, targeting 158.35 and 162.50, with a stop-loss at 154.65. Time horizon: 5–7 days.

Short positions can be considered below 153.12, targeting 150.00 and 146.88, with a stop-loss at 155.50.