Japanese Yen Stays Weak Against USD as Traders Eye Fed and BoJ Policies

The Japanese Yen (JPY) extended its weakness on Monday, slipping against a mildly stronger US Dollar (USD) during the Asian session. Despite reduced safe-haven demand, Yen sellers appear cautious as uncertainty over the Bank of Japan’s (BoJ) next move tempers aggressive bearish bets. At the same time, a modest uptick in the USD, supported by reduced expectations for a jumbo Federal Reserve (Fed) rate cut in September, kept the USD/JPY pair trading with slight intraday gains.

Market Drivers: Policy Divergence and Geopolitics

Global risk sentiment improved as optimism grew around potential progress in ending the Russia-Ukraine war. However, domestic political uncertainty in Japan — following the ruling Liberal Democratic Party’s setback in the upper house elections — along with the negative impact of US tariffs, raised concerns about the BoJ’s timeline for policy normalization.

Recent data showed Japan’s economy expanded more than expected in Q2, and the BoJ raised its inflation forecast, leaving the door open for a possible rate hike before year-end. In contrast, Fed watchers now price in an 85% chance of a rate cut in September, with at least two more cuts expected in 2025.

Meanwhile, Trump’s meeting with Russian President Vladimir Putin in Alaska produced no breakthrough, though markets remain hopeful for further progress. Ahead of his bilateral talks with Ukrainian President Zelenskyy, risk appetite has improved, limiting safe-haven demand for the Yen.

US Data and Fed Outlook

Fresh US data on Friday showed July Retail Sales rose 0.5% MoM, while the University of Michigan’s Consumer Sentiment Index fell to 58.6 from 61.7, highlighting growing concerns among households. Inflation expectations, however, ticked higher, reinforcing doubts over aggressive Fed easing. Combined with last week’s strong US PPI figures, the case for a smaller, measured rate cut in September gained traction, giving the USD additional support.

Traders now await the FOMC meeting minutes on Wednesday and Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, both of which could provide clearer guidance on the Fed’s monetary path.

USD/JPY Technical Outlook

The USD/JPY pair has been consolidating within a tight two-week range, reflecting market indecision. Key technical levels include:

• Resistance: 148.00 (200-period SMA / 38.2% Fib retracement), followed by 148.55–148.60 (50% retracement) and 149.00 (round figure).
• Support: 147.10–147.00 zone, then 146.20 (multi-week low), with a potential slide toward 145.40–145.00 if bearish momentum builds.

The near-term outlook remains neutral, with traders waiting for a breakout above resistance or below support to confirm the next directional move.

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