Japanese Yen slides further against firm USD ahead of closely watched Fed, BoJ policy meetings

Sustained USD buying helps USD/JPY extend its rebound from a one-month low.
Fresh direction awaits as traders prepare for Fed and BoJ decisions and major US economic releases.
Further gains appear supported by a fundamental backdrop that favours the bulls.

USD/JPY trades near 157.70. The pair is up just over 0.10% on Tuesday, maintaining a positive bias for a third consecutive day. It extends its recovery from last week’s low near 156.00, the weakest level in over a month. Follow-through buying in the pair remains limited, however, with traders apparently reluctant to commit ahead of major central bank events.

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

Wednesday brings the US Federal Reserve’s (Fed) decision following its two-day policy meeting. Attention will centre on the accompanying rate statement and remarks from Fed Chair Kevin Warsh at the subsequent press conference. Thursday’s Advance US Q3 GDP report and Personal Consumption Expenditures (PCE) Price Index will also shape expectations for the Fed’s policy trajectory. Those expectations will, in turn, influence the US Dollar (USD) and give USD/JPY fresh direction before Friday’s crucial Bank of Japan (BoJ) policy announcement.

For now, the Japanese Yen (JPY) remains under pressure as expectations that the BoJ may refrain from aggressive rate increases sustain the so-called carry trade. By contrast, the USD is drawing buyers for a third consecutive day. Markets increasingly accept that the US central bank will maintain its hawkish stance as high energy prices fuel inflation concerns. Tensions in the Middle East also sustain the geopolitical risk premium. This provides further support for the safe-haven Greenback and strengthens the case for additional USD/JPY gains.

4-hour USD/JPY chart

Technical Outlook

At 157.81, the 200-period Exponential Moving Average (EMA) continues to cap USD/JPY, leaving the pair trading below it. Initial support sits nearby at the 23.6% Fibonacci retracement of 157.63, marking the upper edge of a corrective pullback zone.

Below that lies a tighter cluster of retracement levels, stretching from the 38.2% level at 156.74 to the 50.0% level at 156.02. Further support stands at 155.30 and 154.28. A break above the 200-period EMA at 157.81 would bring the cycle high near 159.07 into view. That high would need to be regained to temper the prevailing bearish bias.

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

Bank of Japan: key questions

What role does the Bank of Japan play?

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

How has the Bank of Japan’s policy evolved?

In 2013, against a backdrop of low inflation, the Bank of Japan adopted an ultra-loose monetary policy to support economic activity and lift price growth. The policy rests on Quantitative and Qualitative Easing (QQE): printing banknotes to purchase assets, including government and corporate bonds, and inject liquidity. The bank stepped up this approach in 2016, easing further by introducing negative interest rates before moving to direct control of its 10-year government bond yield. A rate increase in March 2024 marked an effective retreat from the BoJ’s ultra-loose stance.

How does Bank of Japan policy affect the Japanese Yen?

The Yen weakened against its major peers as a result of the Bank’s large-scale stimulus. The decline intensified in 2022 and 2023 as the Bank of Japan’s policy increasingly diverged from that of other major central banks. Those banks raised interest rates sharply to tackle inflation at multi-decade highs. The BoJ’s stance widened interest-rate differentials with other currencies, putting downward pressure on the Yen. A partial reversal followed in 2024, when the BoJ opted to end its ultra-loose policy stance.

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

Japanese inflation rose above the BoJ’s 2% target as Yen weakness combined with a surge in global energy prices. Expectations of higher domestic wages, a key driver of inflation, also helped prompt the policy shift.