One-month high: Japanese Yen pulls back against recovering USD as Fed and BoJ remain in focus

An over one-month low gives way to a USD/JPY rebound as a modest USD recovery erases Asian session losses.
Renewed USD demand, driven by geopolitical risks and hawkish Fed expectations, lends support to the pair.
BoJ rate hike expectations gain support from Japan’s National CPI, cushioning the JPY and restraining the pair’s advance.

156.00 marked the area of USD/JPY’s lowest level in over a month. The pair has since recovered from that low, reached in Friday’s Asian session after Japan released its consumer inflation data. Gains beyond 157.00 are proving difficult to sustain, however, leaving the pair on course for a substantial weekly decline.

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

September’s National Consumer Price Index (CPI) rose to 2.1% YoY from 1.9% in the previous month, Japan's Statistics Bureau reported. The core measure excluding volatile fresh food prices also increased by 2.1%, its strongest reading since December 2025. A further measure stripping out both fresh food and energy climbed to a 10-month high of 2.5% in the same month. These figures strengthen the case for the Bank of Japan (BoJ) to continue raising interest rates. The Japanese Yen (JPY) initially received a notable boost, but the reaction soon faded. A modest recovery in the US Dollar (USD) brought dip-buyers back into USD/JPY at lower levels.

Markets still appear convinced that the Federal Reserve (Fed) will raise borrowing costs again this year, even though its officials recently signalled no immediate need for a rate hike. The CME Group's FedWatch Tool puts the probability of a December increase at around 80%. Elevated energy prices also pose inflation risks, reinforcing expectations of further Fed tightening. Meanwhile, escalating Middle East tensions sustain the geopolitical risk premium. The resulting demand for the safe-haven US Dollar supports USD/JPY. Further gains nevertheless appear constrained, with traders seemingly reluctant to take positions ahead of next week's major central bank events.

October 28 brings the Fed's rate announcement following its two-day monetary policy meeting. Attention will then turn to the closely watched Bank of Japan (BoJ) meeting on October 29-30. Next Thursday also brings the Advance US Q3 GDP release and the US Personal Consumption Expenditures (PCE) Price Index. Both will shape USD demand and give USD/JPY fresh direction. Until then, market participants are likely to stay alert to speculation that further JPY weakness could prompt direct currency intervention by Japanese authorities. That risk could impose another ceiling on the pair, calling for caution among aggressive bullish traders.

USD/JPY: daily chart

Technical Outlook

158.55, the level of the 200-day Simple Moving Average (SMA), remains above USD/JPY, constraining the near-term outlook. The pair also trades below the 23.6% Fibonacci retracement at 157.56. This positioning suggests that selling pressure at higher levels is frustrating recent efforts to revive the broader uptrend.

156.68, the 38.2% retracement, provides the first downside support. Below it lie the 50.0% level at 155.98 and further Fibonacci support at 155.27 and 154.26. The swing low near 152.97 forms a more distant structural floor.

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

Bank of Japan: Key Questions

The Bank of Japan’s role

As Japan’s central bank, the Bank of Japan (BoJ) determines the country’s monetary policy. It is mandated to issue banknotes and manage currency and monetary conditions to maintain price stability, expressed as an inflation target of around 2%.

The Bank of Japan’s policy path

2013 marked the start of the Bank of Japan’s ultra-loose monetary policy, intended to support economic activity and lift inflation from low levels. Its approach centres on Quantitative and Qualitative Easing (QQE): printing banknotes to purchase assets, including government and corporate bonds, and inject liquidity. The bank stepped up this strategy in 2016. It first introduced negative interest rates, then took direct control of the yield on its 10-year government bonds to ease policy further. A rate increase in March 2024 effectively marked the BoJ’s retreat from its ultra-loose stance.

The Japanese Yen’s response to Bank of Japan decisions

Large-scale stimulus from the Bank weakened the Yen against other major currencies. Depreciation intensified in 2022 and 2023 as the policy gap widened between the Bank of Japan and other leading central banks. Those banks raised interest rates sharply to tackle inflation at multi-decade highs. By maintaining its policy stance, the BoJ widened interest rate differentials with other currencies, weighing on the Yen. The trend partially reversed in 2024 following the BoJ’s decision to move away from ultra-loose policy.

The reasons behind the Bank of Japan’s policy exit

2% was the BoJ target that Japanese inflation surpassed as a weaker Yen and surging global energy prices pushed prices higher. Expectations of rising domestic salaries, a key driver of inflation, also helped prompt the decision to begin unwinding ultra-loose policy.