The USDJPY initially fell after the Federal Reserve’s decision but then rose sharply as the market realized the Fed’s approach was more cautious than expected. The FOMC now predicts two rate cuts in 2025, while investors were looking for more aggressive cuts. For 2026, only one cut is expected, which is less than the three cuts anticipated prior to the decision. Fed Chair Powell’s focus on the labor market reflects recent weak economic data. The yen is mainly impacted by more dovish views about the Fed, with no significant changes in its fundamentals. The Bank of Japan (BoJ) is likely to keep its current policies, and the market is watching for any changes in guidance. Strong economic data could push interest rate forecasts to be more hawkish, benefiting the USD, while weak data could continue to weigh it down.

Technical Analysis

On the daily chart, USDJPY has dropped below its range to a trendline near 145.60, attracting buyers looking for a rally towards 151.00. Sellers are aiming for a break below this trendline to send it down to 143.00. The 4-hour chart reveals a minor downward trendline that is creating bearish sentiment, with sellers focused on a breakout, while buyers are targeting an upward breach. The 1-hour chart indicates buying interest near minor support at 146.70, alongside selling pressure suggesting a possible downward break. Upcoming events include US Jobless Claims, Japanese Consumer Price Index (CPI), and the BoJ’s policy decision. The market first misinterpreted the Federal Reserve’s message, causing USDJPY to dip before it sharply recovered. The Fed’s new projections were unexpectedly hawkish, showing a slight majority supporting two more rate cuts in 2025. This contrasts with market expectations before the meeting, which showed a nearly 70% chance of three or more cuts, according to the CME FedWatch tool. Looking ahead, the focus is on US economic data. Chairman Powell noted the last two weak Non-Farm Payroll reports, which reported around 150,000 jobs for August 2025, but inflation remains a concern. The most recent Core PCE reading for July 2025 held steady at 3.8%, and strong economic indicators in the coming weeks could reinforce the Fed’s cautious stance, strengthening the dollar.

Japanese Economic Outlook

In Japan, the economic fundamentals remain mostly the same ahead of the BoJ’s decision on September 19th. Policymakers are expected to maintain their current stance, especially with the national CPI forecast around 2.5%, a level that doesn’t require immediate action. The BoJ’s gradual policy normalization, which began in 2024, suggests it will not significantly impact the yen at this time. From a technical perspective, the USDJPY pair has found solid support at the major trendline around 145.60. For derivatives traders, this offers a chance to consider buying call options with strikes aimed at the 151.00 mark, betting on the Fed’s hawkish stance. Implied volatility has likely stabilized after the Fed’s announcement, potentially offering better pricing for these positions. However, risk management is essential. If USDJPY decisively breaks below the 145.60 trendline, the bullish outlook will be invalidated. Traders might consider using put options with strikes below 145.00 as a hedge, or to position for a decline towards 143.00. This bearish scenario could become more likely if upcoming US Jobless Claims or other key data indicate significant weakness in the American economy. Create your live VT Markets account and start trading now.

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