USD/JPY Price Forecast: Firmer USD drives extended recovery from one-month low and return to 157.00

• Near 156.00, the one-month low reached this Friday, USD/JPY finds some buying interest.
• A solid USD recovery lifts the pair, although expectations of a BoJ rate rise could limit gains.
• Technical conditions also suggest caution before taking positions for further gains.

From around 156.00, its lowest level in over a month earlier this Friday, USD/JPY has mounted a solid intraday recovery and retains modest gains in early European trading. With the US Dollar (USD) firmer across the board, the pair is seeking to extend its advance beyond 157.00. Nevertheless, it still looks set to post substantial weekly losses.

Around an 80% probability of a rise in US borrowing costs by the year-end remains priced in as oil-related inflation risks persist, even as confidence grows that the Federal Reserve (Fed) will leave rates on hold next week. Escalating Middle East tensions are also sustaining the geopolitical risk premium and renewing demand for the safe-haven USD. Together, these factors are encouraging some covering of short positions in USD/JPY.

Expectations of an imminent Bank of Japan (BoJ) interest rate rise were reinforced by Japan's National Consumer Price Index (CPI) report, released earlier today. Traders are also keeping a close watch on the risk of direct currency intervention by the authorities, amid speculation that further Japanese Yen (JPY) weakness could prompt action. These considerations may constrain USD/JPY's recovery before next week's major central bank events.

On October 28, the Fed will deliver its rate decision following a two-day monetary policy meeting, ahead of the Bank of Japan (BoJ) meeting on October 29-30. Next Thursday also brings the Advance US Q3 GDP release and the Personal Consumption Expenditures (PCE) Price Index. Both releases will help shape USD price movements and provide a meaningful catalyst for USD/JPY.

For bearish traders, a key technical trigger came with the overnight break beneath support at 157.50. That level marks both the 23.6% Fibonacci retracement of September's advance and the bottom of a trading range established over three weeks. Repeated recent failures to sustain trading above the 200-day simple moving average (SMA), at 158.55, add to the indication that USD/JPY's path of least resistance is still lower.

Fading upward momentum is also evident in the Moving Average Convergence Divergence (MACD) indicator: the MACD line is below its signal line, both remain close to zero, and the histogram is slightly negative. At 43.77, the Relative Strength Index (RSI) is below its midpoint. This supports the view that price action is corrective rather than strongly directional and suggests that a further rise could attract selling.

The first resistance level to watch is 157.56, the 23.60% retracement, followed by the 200-day SMA at 158.55. A move through this resistance cluster would bring the cycle-high anchor near 158.98 into view. Below current prices, initial support lies at 156.68, the 38.20% retracement, ahead of the 50.00% level at 155.98. 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 price action on the daily chart