While just last week markets assigned only a 25% probability to a BoJ rate increase by year-end, sentiment has shifted rapidly. Reports of a breakthrough deal between Japan and the US—which will see US tariffs on Tokyo lowered from 25% to 15%—have sparked renewed policy speculation. In parallel, impending personnel changes at the Federal Reserve could reinforce President Donald Trump’s monetary agenda. Trump, a vocal advocate for US rate cuts, has hinted at nominating a loyalist to replace departing Governor Adriana Kugler and named four candidates for Fed chair, promising a decision by week's end. This development suggests that a US rate cut of –25 basis points could arrive as soon as September, potentially paving the way for the BoJ to adjust its own policy in response. Maintaining the yield differential is critical for yen stability.
On this backdrop, UBS analysts revised their USD/JPY targets to 140.00 by year-end, projecting the next US rate cut in December 2025 and another in June 2026.
Meanwhile, the US dollar's downward momentum from late last week continues: the USDX is hovering around 97.90. Markets are laser-focused on US labor data, with particular interest in today’s jobless claims report. Consensus calls for a slight uptick from 218,000 to 221,000 claims, but any revision to last week’s numbers could upend current assumptions about the pace of job market improvement.
Technical Levels and Trading Strategies
On the daily chart, USD/JPY remains within a broad upward channel (152.50–145.00) but is currently correcting lower, testing the channel's support line. Technical indicators still show a moderate buy signal—fast EMAs on the Alligator indicator sit above the signal line, while the AO histogram remains in positive territory, though recent bars point to slowing bullish momentum.
- Support levels: 146.20, 143.40
- Resistance levels: 148.80, 150.90
Trade setups:
- Sell stop: Enter short positions on a break below 146.20, targeting 143.40. Stop loss at 147.20. Timeframe: 7+ days.
- Buy stop: Enter long positions on a breakout above 148.80, targeting 150.90. Stop loss at 148.00.
Summary: USD/JPY price action is increasingly influenced by both Japanese and US monetary policy expectations. With shifting central bank strategies and political pressures in play, the pair is likely to remain volatile. Traders should closely monitor both Fed and BoJ statements as well as key labor market data for actionable signals.
- USD/JPY Rate Outlook: Will Policy Shifts Drive the Yen?
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- Forex Technicals: USD/JPY Prepares for Key Breakout