On Wednesday, the USD/JPY pair gained nearly 0.40% after the Federal Reserve decided to keep interest rates unchanged, suggesting there might be just one reduction in rates for 2026. As of now, USD/JPY is trading around 159.60, although the market remains quite volatile.
Yen Weakens as Fed Signals Limited Easing
During a press conference, Fed Chairman Jerome Powell maintained a neutral tone. He indicated that the Fed would evaluate policies on a meeting-by-meeting basis and believes the current stance is fitting. He emphasized focusing on goods inflation and the need to assess whether it is progressing.
Powell mentioned that a lack of improvement in inflation would postpone rate cuts, noting, “We think we’re making progress on tariff inflation, but it might take longer than expected.”
On the economy, Powell expressed that things are generally looking good but acknowledged uncertainty surrounding the impacts of ongoing conflicts in the Middle East. He attributed the inflation overshoot to issues related to goods and tariffs.
In a separate decision, the Fed opted to hold interest rates steady, with only one dissenting vote from Governor Stephen Milan.
Looking ahead, U.S. forecasts show that the Fed is likely to cut rates by 25 basis points once in 2026 and again in 2027. Economic growth is projected at 2.4% in 2026 and 2.3% for the following year. Inflation is expected to increase from 2.4% to 2.7%, with core prices also rising from 2.5% to 2.7%.
Yen Traders Await BoJ Decision
In Japan, attention turns to industrial production data and the upcoming monetary policy announcement from the Bank of Japan (BoJ) on Thursday, where interest rates are anticipated to remain unchanged.
USD/JPY Technical Outlook
Currently, USD/JPY is positioned around 159.81 on the daily chart. The short-term outlook appears to be bullish, as prices rise above the simple moving average near 156.50, reinforcing an uptrend. An RSI of 67 suggests upward momentum, although it isn’t in the overbought zone yet, indicating ongoing buying pressure. The pair also respects an upward support trendline originating from 152.10, which consolidates recent lows and supports the rally.
Immediate support is seen at 159.00, with further backing from the uptrend line and the 156.50 moving average area forming a strong demand zone beneath. If this area gives way, deeper support around 154.50 would come into play, which is where earlier consolidation occurred. On the upside, initial resistance appears near 160.50, ahead of 161.50, where it aligns with a descending resistance trendline extending from 159.23. A daily close above 161.50 would validate the bullish trend continuation and potentially indicate higher targets in the sessions ahead.
Frequently Asked Questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most actively traded currencies globally. Its value is primarily influenced by economic trends in Japan, specifically the policies of the Bank of Japan, the differences in bond yields between Japan and the U.S., and overall market sentiment.
The Bank of Japan plays a significant role in currency exchange control, and its actions are pivotal for the yen’s performance. They occasionally intervene in currency markets—usually to devalue the yen—but often refrain from doing so due to political reasons with major trading partners. The long-lasting ultra-easy policy between 2013 and 2024 caused the yen to weaken, though recent gradual easing has started to support it.
Over the last ten years, the Bank of Japan’s focus on ultra-loose monetary policy has created a significant divergence from other central banks, particularly the Federal Reserve. This gap reinforced the preference for U.S. dollar assets over yen assets due to the widening differences in 10-year bond yields. However, with plans to begin easing this policy in 2024 and other central banks considering rate cuts, the landscape is changing.
Typically, the Japanese yen is seen as a safe-haven currency. During turbulent market conditions, investors often flock to the yen, perceiving it as more stable compared to riskier assets, leading to an appreciation against those currencies.
