USD/JPY Price Forecast: Firmer USD lifts pair back above 157.00 as recovery from one-month low extends

• Buying interest emerges in USD/JPY near 156.00, the one-month low recorded this Friday.
• While a sizeable USD recovery lends support to the pair, expectations of a BoJ rate hike could restrict gains.
• Further gains also call for caution, given the prevailing technical configuration.

Modest gains in USD/JPY extend into the early European session, following a sizeable intraday recovery from around 156.00, its lowest level in over a month, reached earlier this Friday. With the US Dollar (USD) strengthening broadly, the pair is attempting to extend its advance beyond 157.00. Nevertheless, it appears on course for substantial losses over the week.

Renewed safe-haven demand for the USD is encouraging some short-covering in USD/JPY as escalating Middle East tensions sustain the geopolitical risk premium. Alongside this, oil-related inflation risks mean investors continue to price in around an 80% probability of the US central bank raising borrowing costs by the year-end, even as expectations grow that the Federal Reserve (Fed) will leave rates unchanged next week.

The scope for further USD/JPY gains ahead of next week's major central bank events could, however, be limited by developments in Japan. Released earlier today, Japan's National Consumer Price Index (CPI) report reinforced market expectations of an imminent Bank of Japan (BoJ) interest rate hike. Traders are also maintaining a high degree of vigilance amid speculation that further weakness in the Japanese Yen (JPY) could prompt the authorities to intervene directly in the currency market.

Next week's central bank calendar begins with the Fed's rate announcement on October 28, at the conclusion of its two-day monetary policy meeting, followed by the Bank of Japan (BoJ) meeting on October 29-30. Also due next Thursday are the Advance US Q3 GDP release and the Personal Consumption Expenditures (PCE) Price Index. These figures will shape USD price movements and offer meaningful direction to USD/JPY.

The technical outlook continues to favour the downside for USD/JPY, with repeated recent attempts to sustain trading above the 200-day simple moving average (SMA) at 158.55 proving unsuccessful. Bears also drew a key signal from the overnight breach of support at 157.50. This level corresponds to the 23.6% Fibonacci retracement of September's advance and the bottom of a trading range established over three weeks.

Momentum indicators also point to a corrective phase rather than a strong directional trend. At 43.77, the Relative Strength Index (RSI) remains below its midpoint, indicating that subsequent rallies could attract selling. Meanwhile, the Moving Average Convergence Divergence (MACD) line has slipped below its signal line; both are close to zero, while the histogram is marginally negative. Together, these readings indicate fading upward momentum.

For any recovery, the first resistance lies at 157.56, the 23.60% retracement, followed by the 200-day SMA at 158.55. Clearing this resistance cluster would bring the cycle high anchor near 158.98 into view. Support on a decline is initially placed at 156.68, the 38.20% retracement, and then at 155.98, the 50.00% level. Further Fibonacci support levels stand at 155.27 and 154.26, while the area around 152.97 forms the broader structural floor for the current swing.

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

USD/JPY: daily price chart