Why is the Japanese Yen lagging as the US Dollar rebounds and Fed-BoJ comes into focus?

• The Japanese Yen loses ground against its peers as the week of Fed and BoJ policy decisions begins.
• Interest rates are expected to remain on hold at both central banks.
• Also on investors’ radar are US flash Q3 GDP, PCE inflation and hyperscalers’ earnings.

Weakness in the Japanese Yen (JPY) extends across its major currency peers on Monday. During European trading, the US Dollar (USD) has advanced 0.35% against the Yen to around 157.36.

A recovery in the US Dollar from its earlier losses into positive territory is pushing USD/JPY higher. At the time of writing, the US Dollar Index (DXY) stands near 101.87, up 0.12%. The index measures the Greenback against six major currencies.

Caution ahead of Wednesday’s Federal Reserve (Fed) monetary policy announcement is supporting the Greenback. The CME FedWatch tool indicates that rates are almost certain to stay within the 3.75%-4.00% range. Consequently, the Fed’s policy guidance will be a key driver of the US Dollar’s outlook.

The week’s other key releases include preliminary Q3 Gross Domestic Product (GDP) and the Personal Consumption Expenditure (PCE) Price Index. Investors will also scrutinise Q3 earnings reports from Amazon, Alphabet and Microsoft.

What could the BoJ signal on rates?

In their assessment of the BoJ, Brown Brothers Harriman (BBH) analysts say it is “widely expected to keep rates on hold at 1.25% and assess September’s 25bps hike before tightening again.” They point back to September, when BoJ Governor Kazuo Ueda “warned that rapid rate hikes could unsettle asset prices,” and cautioned that “it could take some time to confirm that 2% inflation is entrenched.”

Despite those cautions, BBH’s view is that “firmer underlying inflation leaves scope for a more hawkish Outlook report, lifting BoJ rate expectations in favor of JPY.” To illustrate the change in sentiment, the analysts note that “the swaps curve price in 75% odds of a 25bps BoJ rate hike to 1.50% at the December 18 meeting and nearly 75bps of tightening in the next twelve months.”

USD/JPY Technical Analysis: Can the Pair Clear Its Near-Term Cap?

Trading at 157.38 on the daily chart, USD/JPY maintains a slightly bearish short-term bias below the 20-day exponential moving average (EMA) at 157.71. Its retreat beneath this near-term trend indicator points to waning upward pressure. Meanwhile, the Relative Strength Index (RSI), at 46.96 and drifting below the midpoint, signals weakening bullish momentum rather than outright oversold conditions.

The 20-day EMA at 157.71 marks the first resistance level. Only a sustained move above it would ease the current constraint on the pair and open the way to higher levels. Conversely, with no nearby technical support identified in the dataset, USD/JPY remains exposed to further declines. Traders are likely to look for emerging horizontal support or new moving average levels to assess whether the corrective phase will continue.

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