Key Moments
- USD/JPY traded higher toward the 154.00 level in early Asian dealings while remaining near a roughly seven-month low.
- Market participants have fully priced in a 25-bps BoJ rate hike this week and see a strong chance of another move in December.
- Heightened tensions involving the US and Iran and regional incidents around the Strait of Hormuz have been supporting demand for the US Dollar.
USD/JPY Supported by Fed Expectations and Geopolitical Tension
The USD/JPY pair started the new week on a firmer footing, drawing fresh buying interest during the Asian session and moving closer to the 154.00 handle. The advance retraced part of the losses recorded on Friday. Even so, the pair continues to trade within the range that has contained price action for roughly the past week and remains close to a nearly seven-month low reached last Tuesday, as investors await a series of major central bank decisions.
The US Federal Reserve (Fed) and the Bank of Japan (BoJ) are approaching closely watched policy meetings scheduled for September 15-16 and September 17-18, 2026, respectively. Market positioning followed last week’s US inflation data, which reinforced expectations that the Fed will increase interest rates on Wednesday. At the same time, an escalation in tensions between the US and Iran has been underpinning safe-haven demand for the US Dollar (USD), providing additional support to USD/JPY.
Middle East Developments Sustain Safe-Haven Demand
Geopolitical concerns in the Middle East continue to influence market sentiment. Yemen’s Iran-backed Houthi fighters stated that they used drones and missiles against a military base in southern Saudi Arabia. In a separate incident, an Iranian cargo ship was hit early Sunday in the Strait of Hormuz, and a planned meeting between Gulf states and Iran about the Strait of Hormuz has been postponed.
These developments have kept a geopolitical risk premium in place, which has in turn benefited the US currency as investors seek perceived safe-haven assets. This dynamic has contributed to the upward bias in USD/JPY at the start of the week.
BoJ Repricing Limits Upside for USD/JPY
Despite the firmer USD tone, the Japanese Yen (JPY) remains underpinned by evolving expectations around the BoJ’s policy path, potentially limiting the upside for the currency pair. Markets have fully discounted a 25-basis-point rate increase by the BoJ later this week and are attaching a high probability to an additional hike in December.
Those expectations have strengthened after comments last week from BoJ’s Kazuyuki Masu, who said that underlying inflation is approaching 2% and that the current policy rate remains below the neutral level. This more hawkish repricing of BoJ tightening prospects may act as a counterweight to USD strength and keep gains in USD/JPY in check as the policy meetings approach.
Key Technical Levels for USD/JPY
From a technical perspective, USD/JPY retains a bearish short-term tone while trading beneath the 38.2% Fibonacci retracement and the former horizontal support area at 155.30-155.20. A decisive recovery back above that zone would be needed to start easing the existing downward pressure.
On the downside, initial support is located at the 50% retracement level at 152.00, followed by the 61.8% retracement at 149.17. A sustained break below 149.17 would open the way toward the 78.60% retracement at 145.14.
| Level | Type | Price |
|---|---|---|
| 155.30-155.20 | Resistance / Former support zone | 155.30-155.20 |
| 38.2% Fibonacci (below current price) | Reference for bearish bias | Not specified |
| 152.00 | Support – 50% Fibonacci retracement | 152.00 |
| 149.17 | Support – 61.8% Fibonacci retracement | 149.17 |
| 145.14 | Support – 78.60% Fibonacci retracement | 145.14 |
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