The Japanese Yen (JPY) trades in a narrow range against the US Dollar (USD) during Wednesday’s Asian session, reflecting mixed fundamental signals. While political uncertainty in Japan and buoyant equity markets weigh on the safe-haven JPY, expectations of further Bank of Japan (BoJ) tightening and dovish Federal Reserve (Fed) prospects help cushion losses, limiting upside momentum for USD/JPY.
Policy divergence in focus
Markets remain confident that the BoJ will proceed with policy normalization and raise interest rates before year-end, supported by recent data showing resilient household spending, positive real wages, and an upwardly revised Q2 GDP growth of 2.2% annualized. Meanwhile, the Reuters Tankan poll revealed the strongest manufacturer sentiment in over three years.
In contrast, the Fed is widely expected to cut rates next week following softer US labor market data. Friday’s disappointing Nonfarm Payrolls report, alongside downward job revisions, reinforced bets on a 25 bps rate cut, with markets also considering a slim chance of a larger move. The growing policy divergence keeps the JPY supported and caps USD/JPY gains.
Political backdrop and risk sentiment
Prime Minister Shigeru Ishiba’s decision to step down after the Liberal Democratic Party’s election loss adds uncertainty, potentially slowing BoJ’s tightening path. At the same time, Wall Street’s record highs spilled over into Asian equities, denting safe-haven demand for the Yen and offering modest support to the USD.
Technical outlook: 148.00 remains a ceiling
USD/JPY’s recovery from the 146.30 August swing low stalled amid weak follow-through buying. Technical indicators remain bearish, suggesting rallies towards the 147.75–148.00 region may attract fresh sellers. A break above 148.00 could spark short-covering, opening a path toward the 200-day SMA near 148.75.
On the downside, 147.00 offers immediate support, followed by the 146.30–146.20 zone. A decisive drop below 146.00 would likely accelerate losses toward 145.35 and the psychological 145.00 level.
Near-term drivers
Traders now look to the US Producer Price Index (PPI) later today, followed by Thursday’s CPI release, which will be key for shaping Fed expectations and USD/JPY direction in the short term.
