Fed and BoJ remain in focus as Japanese Yen slips from one-month high against recovering USD

A modest USD rebound helps USD/JPY recover its Asian session losses after hitting a low not seen in over a month.
Renewed demand for the USD lends support to the pair as geopolitical risks persist and markets anticipate a hawkish Fed.
Scope for JPY losses and further gains in spot prices remains restricted as Japan’s National CPI reinforces BoJ rate hike expectations.

A recovery in USD/JPY has lifted the pair from around 156.00, its lowest level in over a month, though gains beyond 157.00 remain difficult to sustain and sizeable weekly losses are still on the cards. The low was reached in Friday’s Asian session after Japan released its consumer inflation data.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Fresh figures from Japan’s Statistics Bureau showed that the National Consumer Price Index (CPI) rose 2.1% YoY in September, up from 1.9% in the preceding month. The core measure excluding volatile fresh food prices also increased by 2.1%, its highest reading since December 2025. Meanwhile, CPI excluding both fresh food and energy climbed to 2.5%, a 10-month high, strengthening the case for the Bank of Japan (BoJ) to continue raising interest rates. The Japanese Yen (JPY) initially received a sizeable boost, but the reaction proved short-lived. A modest recovery in the US Dollar (USD) subsequently drew buyers into USD/JPY at lower levels.

Expectations of another US rate increase this year remain firmly held among traders, even though Federal Reserve (Fed) officials recently indicated there was no immediate need to raise rates. Around an 80% probability of a December hike is currently indicated by the CME Group’s FedWatch Tool. Inflation risks from high energy prices further support the prospect of additional Fed tightening. At the same time, escalating Middle East tensions are sustaining the geopolitical risk premium and renewing demand for the safe-haven Greenback, lending support to USD/JPY. Nevertheless, traders appear reluctant to push the pair higher before next week’s major central bank events, which seems to be restricting its upside.

Next week’s policy calendar begins with the Fed’s rate announcement on 28 October, at the conclusion of its two-day monetary policy meeting, followed by the keenly awaited Bank of Japan (BoJ) meeting on 29–30 October. Also due next Thursday are the Advance US Q3 GDP estimate and the US Personal Consumption Expenditures (PCE) Price Index. These releases will influence USD demand and give USD/JPY a meaningful directional impetus. Until then, market participants are likely to stay vigilant amid speculation that further JPY weakness could prompt direct currency intervention by Japanese authorities. That possibility could place an additional ceiling on the pair, calling for caution among traders taking aggressive bullish positions.

What does the USD/JPY daily chart indicate?

What do the technical levels suggest?

The near-term outlook for USD/JPY remains constrained while the pair trades beneath its 200-day Simple Moving Average (SMA) at 158.55. Trading also remains below the 23.6% Fibonacci retracement level of 157.56, indicating that selling pressure at higher levels is frustrating recent efforts to restart the broader uptrend.

Initial downside support lies at 156.68, the 38.2% retracement, with the 50.0% retracement at 155.98 next in line. Further Fibonacci support levels stand at 155.27 and 154.26. Beyond these, the swing low near 152.97 provides a more distant structural support base.

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

Bank of Japan: key questions answered

What role does the Bank of Japan play?

Responsibility for Japan’s monetary policy rests with its central bank, the Bank of Japan (BoJ). Its remit covers issuing banknotes and managing currency and monetary conditions to maintain price stability, defined as an inflation target of around 2%.

How has the Bank of Japan’s policy evolved?

Against a backdrop of low inflation, the Bank of Japan adopted an ultra-loose monetary policy in 2013 to support economic activity and lift price growth. Its approach centres on Quantitative and Qualitative Easing (QQE), which involves printing banknotes to purchase assets, including government and corporate bonds, and thereby inject liquidity. Policy was eased further in 2016 as the bank reinforced this approach, first adopting negative interest rates and subsequently controlling the yield on its 10-year government bonds directly. A rate increase in March 2024 effectively marked the BoJ’s retreat from its ultra-loose monetary stance.

How does the Japanese Yen respond to Bank of Japan decisions?

Large-scale stimulus from the Bank weakened the Yen against other major currencies. The depreciation intensified during 2022 and 2023 as the policy gap widened between the Bank of Japan and other leading central banks, which raised interest rates steeply to tackle inflation at multi-decade highs. By widening interest rate differentials with other currencies, the BoJ’s policy put downward pressure on the Yen. A partial reversal followed in 2024, when the BoJ opted to move away from its ultra-loose policy stance.

What prompted the Bank of Japan to begin withdrawing its ultra-loose policy?

Japan’s inflation moved above the BoJ’s 2% target as a weaker Yen and surging global energy prices pushed prices higher. Expectations of domestic wage increases, an important driver of inflation, also helped prompt the policy shift.