Dollar Keeps Yen Near Lows Ahead of Fed and BoJ Decisions

Key Moments

USD/JPY Steadies Ahead of Fed and BoJ Policy Announcements

The USD/JPY pair is extending its upward bias for a second session, trading above the mid-154.00s during Asian hours on Tuesday. The move comes as the US Dollar maintains broad strength, although gains in the currency pair appear constrained as market participants hold back ahead of major central bank decisions this week.

Both the US Federal Reserve and the Bank of Japan are due to release monetary policy decisions on Wednesday and Friday, respectively, amid firm expectations for an imminent rate hike. Investors are focused on the forward guidance from both institutions, which is expected to shape the next meaningful directional move in USD/JPY.

While anticipation of further policy normalization in Japan is lending underlying support to the Japanese Yen, the US Dollar remains underpinned by higher US bond yields and ongoing geopolitical concerns. This combination is helping to keep USD/JPY supported, even as upside momentum remains modest.

Shifting Positioning and Strengthening BoJ Tightening Narrative

Analysts at DBS highlight that speculative market positioning has moved significantly in favor of the Yen. They note that “speculators have unwound their short JPY positions following July’s joint US-Japan currency intervention and a shift in expectations towards further Bank of Japan tightening.”

DBS also points to a change in the policy discussion within Japan: “even former BoJ-tightening sceptics – including Takuji Aida, an economic adviser to Takaichi and a former vocal opponent of BOJ tightening – are now acknowledging the case for higher rates, strengthening expectations for a hawkish hike on September 18.”

These evolving expectations around the BoJ’s normalization path are helping to limit further JPY depreciation and may serve as a restraint on additional upside in USD/JPY, particularly if the central bank signals a more assertive tightening trajectory.

US Yields and Geopolitics Support the Dollar

In contrast, rising US rate expectations and inflation concerns are supporting the US Dollar. Higher energy prices are feeding inflation risks and have pushed the yield on the benchmark 10-year US Treasury bond above the 5% mark for the first time since 2023.

At the same time, tensions linked to the US-Iran standoff and the possibility of further escalation in the Middle East are sustaining demand for the safe-haven USD. These dynamics have kept the Dollar hovering near a nearly two-week high set on Monday, reinforcing the floor under USD/JPY even as BoJ-related expectations work in the opposite direction.

USD/JPY Technical Picture: Key Levels in Focus

On the 4-hour chart, USD/JPY is attempting to consolidate above a key confluence near 154.60-154.65. This zone combines the 50-period Simple Moving Average and the 23.6% Fibonacci retracement, providing an initial technical base following the recent recovery from the 153.00s.

The broader advance remains shallow, with several resistance levels clustered above current prices. Nonetheless, the attempt to hold above the current support band indicates that buyers are trying to establish a more stable platform.

A sustained move below the 154.60-154.65 support band would expose the next downside target around 152.89. On the upside, a break above 155.74 could open the way toward 156.62 and 157.50, with further resistance at 158.76 and near the cycle high around 160.35.