Japanese Yen stays close to one-month high against weak USD ahead of Fed and BoJ meetings

• An Asian-session rise in USD/JPY fails to gain traction, although scope for further losses appears limited.
• Ahead of this week’s major central bank decisions, diverging Fed-BoJ policy positions constrain the pair.
• The US Q3 GDP release and PCE Price Index will provide additional direction for traders.

With the 156.00 area having marked its lowest level since 18 September, USD/JPY’s modest rebound on Friday has stalled as an early rise at the start of the new week draws renewed selling. Below 157.00, the pair appears exposed to further weakness. However, this week’s major central bank decisions and economic releases may discourage bears from taking aggressive positions.

Wednesday brings the US Federal Reserve’s (Fed) decision following its two-day policy meeting, although attention will centre on the accompanying rate statement and Fed Chair Kevin Warsh’s remarks at the subsequent press conference. Thursday’s Advance Q3 GDP estimate and Personal Consumption Expenditures (PCE) Price Index will also shape expectations for the Fed’s policy outlook and influence the US Dollar (USD). After those releases, attention will turn to Friday’s pivotal Bank of Japan (BoJ) policy announcement, which should provide further direction for USD/JPY in the near term.

For now, recent comments from Fed officials suggest they see no pressing need to increase interest rates at the forthcoming meeting. A retreat in US bond yields from multi-year highs is also restraining the USD’s attempted recovery from the three-week low reached last Thursday. By contrast, the Japanese Yen (JPY) is benefiting from the more hawkish remarks made last week by BoJ Governor Kazuo Ueda. His indication that underlying inflation is approaching the 2% target reinforces the argument for an imminent rate increase. These developments could continue to provide a tailwind for USD/JPY, although ongoing geopolitical uncertainty may prevent more pronounced losses in the safe-haven dollar.

On the Middle East crisis, US President Donald Trump has ruled out military action against Iran in the immediate term. Nevertheless, Yemen’s Iran-backed Houthis threatened on Sunday to continue attacks on Saudi Arabia’s King Khalid Airport in Riyadh. Alongside the impasse in US-Iran talks, this leaves the geopolitical risk premium firmly in place. Markets also continue to assign around an 80% probability to another increase in US Fed borrowing costs in December. That prospect may discourage aggressive bearish USD positions and contain USD/JPY’s losses, suggesting caution before positioning for a further decline.

USD/JPY price action on the 4-hour chart

Technical Outlook Remains Bearish

Trading beneath the 200-period Simple Moving Average (SMA) leaves USD/JPY’s near-term outlook bearish on the 4-hour chart. This resistance stands at 157.14, with the 23.6% Fibonacci retracement following at 157.58. A return towards the recent cycle highs would require a sustained move above this resistance band.

Initial support lies at the 38.2% retracement of 156.69. Further down, buyers may try to steady the decline around the Fibonacci cluster at 155.98 and 155.26, corresponding to the 50% and 61.8% retracements.

(The technical analysis of this story was written with the help of an AI tool. Know more.)