The USDJPY pair has been stuck in a range for over a month, despite many events and data releases. The US dollar has weakened, partly due to a disappointing Non-Farm Payroll report. This has led to expectations of three rate cuts by the end of the year, totaling 70 basis points. There’s a 10% chance of a 50 basis point cut happening in September if we get a weak CPI report this Thursday. The yen dropped after Japanese PM Ishiba resigned but quickly bounced back to previous levels. On the US dollar side, bearish bets could be too high, suggesting a possible end to the current dovish outlook. If the economy remains strong, it may stop future rate cuts beyond 2026, which could help the dollar. However, weak US data could push the dollar lower. The yen’s rise is related to expectations regarding policies from the US Federal Reserve. More yen strength could occur if weak US data increases dovish forecasts for the Fed or if rising inflation in Japan leads to more rate hikes there.

Technical Analysis

In terms of technical analysis, USDJPY met resistance at the 148.50 level on the daily chart. Traders eyeing the 145.50 trendline might expect a rally up to 151.00. On shorter timeframes, like the 4-hour and 1-hour charts, the pair is also trading in a range, with traders buying at support levels and selling at resistance levels. Important US data releases include the PPI report, CPI report, Jobless Claims data, and the University of Michigan Consumer Sentiment report. After last Friday’s Non-Farm Payroll report on September 5, 2025, showed only 145,000 new jobs, the US dollar weakened significantly. This report was much lower than expected, reinforcing market expectations for the Federal Reserve. Fed funds futures now indicate about 70 basis points of cuts may happen by year-end, with predictions of three 25 basis point cuts in remaining meetings. Market attention is now on the US CPI inflation data this Thursday, with a consensus forecast of a 0.2% month-over-month increase in the core reading. A weaker number than expected could boost the chances of a 50 basis point cut in September and may push USD/JPY below its current range. Derivative traders might consider buying cheaper out-of-the-money puts to prepare for this possible breakdown.

Inflation and Market Outlook

On the flip side, the yen’s recent strength mainly reflects the weakness of the dollar, not its own strong fundamentals. Japan’s core inflation was 2.6% in August 2025, above the Bank of Japan’s target but not enough to prompt a more aggressive policy. For the yen to gain strength independently, we would need to see consistent inflation rates above 3%. Technically, we remain between significant resistance at 148.50 and key trendline support around 145.50. Given the uncertainty before the inflation data, strategies like a long strangle—buying a call option above 148.50 and a put option below 145.50—could work to profit from a breakout in either direction. This approach allows traders to benefit from volatility without betting on a specific outcome. We should also consider that market expectations for Fed cuts might be overstated since the bearish dollar positioning looks stretched. If this week’s inflation and PPI reports come in unexpectedly strong, we could see a quick turnaround in these dovish bets. In that case, traders holding call options could profit if the pair rises above 148.50, potentially aiming for the 151.00 level that we saw in late 2023. Create your live VT Markets account and start trading now.

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