USD/JPY Price Forecast: Dollar-Yen at 148.78 as Fed Holds Cautious Tone and BoJ Faces Policy Divide

USD/JPY Price Forecast: Pair Trades Near 148.80 as Fed Caution Meets BoJ Uncertainty

Dollar Strength Pushes USD/JPY Toward 149.00

The USD/JPY pair advanced to 148.78, its highest level since early September, gaining almost 0.80% intraday. The move was driven by renewed U.S. dollar strength following Jerome Powell’s warning that “there is no risk-free path” in balancing inflation and employment. His cautious stance limited expectations of aggressive rate cuts, reinforcing near-term support for the greenback. The broader dollar index (DXY) also climbed 0.65% to 97.52, giving USD/JPY enough momentum to test resistance levels near the 148.65–150.00 corridor.

Japanese PMIs Deepen Yen Weakness

The yen’s weakness accelerated after Japanese data showed the Manufacturing PMI fell to 48.4, from 49.7 in August, well below forecasts of 50.2. The services sector remained in expansion, but only modestly, at 53.0 versus 53.1 previously. These figures highlight the challenge facing the Bank of Japan: while inflation edges closer to its 2% target, weak factory activity and uneven growth make aggressive rate hikes politically and economically difficult. Market attention now turns to the upcoming BoJ meeting minutes, which revealed a 7–2 vote with two members pushing for a 25 bps hike, showing deep policy divisions inside the board.

Fed-BoJ Divergence Creates Tense Standstill

The policy divergence remains the critical driver. The Federal Reserve is leaning toward two more cuts before the end of 2025, but Powell’s remarks kept traders cautious. Meanwhile, the BoJ is under pressure as Governor Kazuo Ueda admitted inflation is “approaching 2%,” while risks from food prices and U.S. tariffs persist. This split between a Fed pivot and possible BoJ tightening should, in theory, weigh on USD/JPY, yet price action has resisted downside, signaling strong speculative positioning and carry trade demand above 145.00.

Key Technical Levels for USD/JPY

USD/JPY faces stiff resistance in the 148.65–150.00 zone, a band that capped rallies earlier this year and during July’s failed breakout. A decisive close above 150.77 would shift sentiment firmly bullish. On the downside, support lies at 147.00, followed by 146.00 trendline support, and deeper at 145.00, where liquidity from prior lows rests. Technical momentum is consolidating with multiple weekly doji candles, indicating indecision before a likely sharp move. The 200-day moving average continues to cap rallies, maintaining a medium-term bearish tilt unless broken convincingly.

Market Risks and Event Triggers

Upcoming U.S. GDP revisions, durable goods data, and the Core PCE inflation index later this week are likely catalysts. In Japan, Tokyo CPI on Friday will be pivotal: a reading above expectations could give the BoJ more confidence to tighten, potentially weighing on USD/JPY. Political uncertainty also looms, with leadership contenders like Sanae Takaichi warning about the risks of higher mortgage costs if the BoJ hikes prematurely. Traders remain wary of a sudden policy shock, similar to past yen interventions when USD/JPY approached the 150 handle.

Trading Sentiment and Outlook

For now, the market remains trapped between Fed caution and BoJ hesitation. Bulls have failed to leave the 150 ceiling behind, while bears lack conviction to push through 145.00. This stalemate builds pressure for a breakout. If Powell signals firmer conviction on rate cuts or Tokyo CPI surprises to the upside, USD/JPY could slip toward 145.00–146.00. Conversely, continued dollar resilience with no BoJ action could ignite a breakout to 151.00, setting new multi-month highs. Based on current momentum, the bias leans slightly bearish toward a retest of 146.00, but traders must respect the 150 barrier, where intervention risk intensifies.

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