Japanese Yen Trades Cautiously as BoJ Signals Remain Mixed, Fed Rate Cut Bets Cap USD Strength

The Japanese Yen (JPY) started the week with subdued movement on Monday, trading within a narrow range as market activity remained light due to Japan’s Mountain Day holiday. Investors appeared hesitant to take strong positions, with uncertainty lingering over the timing of the Bank of Japan’s (BoJ) next interest rate hike.

Mixed BoJ Signals Keep Traders on the Sidelines

While the BoJ recently revised its inflation forecast and kept the door open for more interest rate increases, concerns over the potential negative impact of higher US tariffs and ongoing domestic political uncertainty are weighing on rate hike expectations. Policymakers have stressed that any further tightening will depend on whether economic growth and inflation progress in line with forecasts.

This cautious BoJ stance stands in contrast to the US Federal Reserve’s dovish outlook. Rising bets on a September Fed rate cut have limited the US Dollar’s recovery from last week’s two-week low, keeping USD/JPY capped below the 147.75–147.80 resistance zone during Asian trading hours.

Key Data Ahead for JPY Traders

Market attention now shifts to a series of high-impact releases that could shape USD/JPY trends:

• US Inflation Data: CPI on Tuesday and PPI on Thursday will provide fresh insight into Fed policy expectations.
• Japan Q2 GDP: Due Thursday, offering an important gauge of domestic economic momentum.

Stronger Japanese GDP or higher producer prices could boost expectations for a BoJ hike, supporting the Yen. Conversely, weaker readings would reinforce a cautious, wait-and-see approach.

Global Risk Sentiment and Geopolitical Factors

Asian stock markets and US equity futures edged higher at the start of the week, pressuring safe-haven demand for the Yen. However, risk appetite remains fragile ahead of Tuesday’s US tariff deadline on China and a planned meeting between US President Donald Trump and Russian President Vladimir Putin in Alaska later this week.

Fed Rate Cut Bets Keep USD on the Back Foot

The US Dollar came under pressure on Monday as traders reacted to dovish weekend comments from Fed Governor Michelle Bowman, who said three rate cuts could be appropriate this year, citing signs of labor market weakness. The CME FedWatch Tool now shows nearly a 90% probability of a September rate cut.

With no major US data scheduled for Monday, attention remains on upcoming Fed commentary and the US CPI release, which could determine the next major move in USD/JPY.

USD/JPY Technical Outlook – Range-Bound, Key Levels in Focus

The pair remains trapped in a consolidation phase, forming a rectangle pattern on daily charts:

• Resistance: A decisive break above 147.75–147.80 (38.2% Fibonacci retracement of July’s rally) could open the way to 148.45–148.50, followed by the 149.00 region.
• Support: Initial downside protection lies at 147.00, with stronger support at 146.80–146.75 (200-period SMA on 4H chart + 50% Fibo). A break below could expose 146.00 and the psychological 145.00 level.

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