Japanese Yen Outlook: BoJ-Fed Divergence Supports JPY as USD/JPY Holds Range

The Japanese Yen (JPY) gained modest ground on Wednesday, attracting dip-buyers despite weak domestic trade data. Investors continue to bet that the Bank of Japan (BoJ) will stick to its policy normalization path, potentially hiking interest rates by year-end. This divergence with the US Federal Reserve (Fed) outlook has provided a tailwind for the Yen, even as the US Dollar remains broadly supported.

Yen Gains Despite Weak Trade Data

Japan’s economic data released earlier today painted a mixed picture.

Core Machinery Orders rose 3% in June, the first increase in three months, surprising forecasts of a 1% decline. This was driven by a strong rebound in non-manufacturing demand.
However, exports fell 2.6% YoY, the sharpest drop in over four years, highlighting the drag from higher US tariffs and weaker global demand.
Imports declined 7.5% YoY, smaller than expected, but the overall trade balance slipped into a ¥117.5 billion deficit, compared with expectations for a surplus.

The weaker trade outlook pressured the Yen initially, but BoJ’s hawkish stance helped limit losses.

BoJ vs. Fed: Policy Divergence at Play

The Bank of Japan has signaled readiness to raise rates if growth and inflation stay aligned with its forecasts, contrasting sharply with expectations for the Fed to begin rate cuts as soon as September.

Markets currently price in two 25 bps Fed cuts by year-end, though hotter US Producer Price Index (PPI) data last week tempered calls for aggressive easing.
This divergence means the JPY retains safe-haven appeal, while traders remain cautious about placing heavy long bets on the USD.

The upcoming FOMC Minutes and Powell’s Jackson Hole speech are expected to provide clarity on the Fed’s path, which could impact USD/JPY momentum.

USD/JPY Technical Outlook

From a technical perspective, the 147.10–147.00 zone is acting as key near-term support.

A break below this region could trigger a deeper decline toward 146.20, with further selling opening the path to 146.00 and beyond.
On the upside, sustained strength above 148.00 could allow USD/JPY to target 148.55–148.60, followed by the 149.00 round number.

For now, the pair remains in consolidation mode, with traders awaiting fresh catalysts from Fed commentary and global PMI data.

Key Takeaways for Traders

Yen supported by BoJ’s hawkish outlook, despite weak trade data.
Fed rate cut expectations remain a limiting factor for USD upside.
USD/JPY key levels: Support at 147.00–146.20, resistance at 148.60–149.00.
Focus now shifts to FOMC Minutes, global PMIs, and Powell’s Jackson Hole speech for the next directional move.