Yen Pulls Back as Dollar Firms Ahead of Fed & BoJ Rates

Key Moments

USD/JPY Stabilizes After Inflation-Driven Slide

The USD/JPY pair recovered from losses seen in the Asian session, when it briefly touched an over one-month low around the 156.00 area following the release of Japan’s consumer price data. The rebound lifted the pair, but attempts to extend gains beyond the 157.00 level have stalled, leaving USD/JPY still on course for substantial weekly declines.

Japan Inflation Data Strengthens BoJ Rate Hike Narrative

Fresh figures from Japan’s Statistics Bureau showed that the National Consumer Price Index rose to 2.1% year-on-year in September, up from 1.9% in the prior month. A core measure that excludes fresh food also increased by 2.1%, its highest reading since December 2025. In addition, the core CPI excluding both fresh food and energy climbed to a 10-month peak of 2.5%.

These data points reinforce expectations that the Bank of Japan will continue raising interest rates, initially providing notable support for the Japanese Yen. However, that boost faded as the session progressed, allowing a modestly recovering US Dollar to attract dip-buying interest in USD/JPY at lower levels.

Fed Expectations, Geopolitics Support the Dollar

Although recent remarks from Federal Reserve officials have not signaled an urgent need for an immediate rate increase, market participants continue to anticipate another hike before the end of the year. The CME Group’s FedWatch Tool is indicating about an 80% probability of a move in December.

Persistent inflation risks tied to higher energy prices are underpinning expectations of additional Fed tightening. At the same time, ongoing tensions in the Middle East are maintaining a solid geopolitical risk premium, encouraging demand for the US Dollar as a perceived safe-haven asset and providing a supportive backdrop for USD/JPY. Even so, upside follow-through remains constrained as traders look ahead to major central bank events.

Busy Event Calendar: Fed, BoJ, and Key US Data in Focus

The Federal Reserve is slated to deliver its rate decision at the conclusion of its two-day policy meeting on October 28. That will be followed by the closely watched Bank of Japan meeting scheduled for October 29-30.

Before those decisions, market participants will also assess the Advance US Q3 GDP release and the US Personal Consumption Expenditures Price Index, both due next Thursday. These data points are expected to play a pivotal role in shaping US Dollar demand and, by extension, the near-term trajectory of USD/JPY.

In parallel, traders remain alert to the possibility that further yen weakness could prompt direct foreign-exchange intervention by Japanese authorities. Such concerns are likely to contribute to resistance on USD/JPY rallies and argue for caution among aggressive bullish participants.

Technical Perspective on USD/JPY

From a technical standpoint, USD/JPY continues to trade beneath the 200-day Simple Moving Average at 158.55, a configuration that keeps the short-term bias constrained on the upside. The pair is also holding below the 23.6% Fibonacci retracement level at 157.56, suggesting persistent supply as the market attempts to reassert the broader uptrend.

Initial support is located at the 38.2% retracement level at 156.68, with further downside cushions at the 50.0% retracement at 155.98 and additional Fibonacci layers at 155.27 and 154.26. The swing low region around 152.97 stands out as a more distant structural floor for the pair.