USD/JPY Declines Amid Prolonged U.S. Government Shutdown and Rising Yen Demand

The Senate has now failed for the tenth time to pass a stopgap funding bill to keep the federal government operating through November. The shutdown is costing about $15 billion per day and adding to the national debt. President Donald Trump announced that more than 10,000 federal employees will soon be laid off. Unsurprisingly, the appeal of the U.S. dollar has weakened, with the USDX losing 0.75% over the week.

Meanwhile, Japan’s household spending index—one of the Bank of Japan’s preferred gauges of economic strength—rose to 2.3% year-over-year in August, up from 1.4% and well above expectations. On a monthly basis, the figure climbed to 0.6% from 0.1%, indicating underlying inflationary pressure that could soon be reflected in consumer prices. According to BoJ projections, the core inflation rate is expected to average around 2.2% in fiscal 2025 before slowing to 1.7% in 2026. Economists now anticipate a potential 25 basis point rate hike to 0.75% in Q4, though any tightening is likely to be cautious amid economic uncertainty. However, the central bank’s overall hawkish tone continues to support the yen in the long term.

On the political front, Sanae Takaichi was recently elected leader of Japan’s Liberal Democratic Party. If she becomes Prime Minister, analysts expect a shift toward a more dovish stance. Elections are scheduled for October 21 but could be postponed following the withdrawal of the Komeito Party from the coalition.

Support and Resistance Levels

In the long-term outlook, the trend remains bullish: the pair surpassed its March high of 151.20, reached resistance at 153.23, and then reversed into a correction, breaking support at 150.70. Short positions may be considered from this level with a target at 148.48, where long entries could later be relevant with upside potential back to 150.70.

In the medium term, the uptrend also holds: last week, the price touched zone 2 (152.14–151.59) and began a pullback toward the trend support area of 148.18–147.70. Long entries from this region remain valid with targets at 150.50 and 153.27. However, a break below 147.70 would signal a trend reversal toward 143.42–142.97.

Resistance levels: 150.70, 153.23, 154.80.
Support levels: 148.48, 146.22, 142.50.

Trading Scenarios and USD/JPY Forecast

Long positions can be opened from 148.48 with a target at 150.70 and a stop-loss at 147.75. Implementation time: 9–12 days.

Short positions can be opened below 147.75 with a target at 146.22 and a stop-loss at 148.48.