USD/JPY stabilized this morning after declining for four sessions, currently sitting at 147.10. Analysts note subtle bearish trends in daily momentum, alongside a decline in RSI, indicating possible two-way trades due to political risks. Resistance levels are at 147.80 and 148.30, while support is found at 146.50/70 and 145.40. Japan’s LDP party will select its leader on Saturday. There are hopes that JPY could strengthen as political uncertainty decreases and the Bank of Japan (BoJ) moves towards policy normalization. Key elements, like wage growth, services inflation, and overall economic activity in Japan are expected to support this transition. The next BoJ meeting is on 30 October, followed by another in December, where a rate hike is likely, though a surprise adjustment in October is possible.

The Role Of Fed And BoJ Policies

The difference between Fed and BoJ policies is expected to push USD/JPY lower. In the short term, worries about the US government shutdown could lead to increased demand for the yen as a safe-haven asset. Markets are starting to price in a rate hike for the December meeting, which could boost JPY. With USD/JPY around 147.10, we see chances to benefit from any strength in the coming weeks. Any rise toward the resistance levels of 147.80 and 148.30 could be good entry points for short positions. Daily momentum indicators are showing early signs of becoming bearish, supporting this perspective. We anticipate that the Bank of Japan will continue with policy normalization. Japan’s core CPI for August 2025 was 2.8%, remaining over the 2% target for more than a year. Notable wage growth confirmed during the 2024 and 2025 “Shunto” negotiations provides strong grounds for the BoJ to take action. Once the political uncertainty from this weekend’s LDP leadership vote is resolved, the attention will shift back to monetary policy.

Anticipated Rate Hikes And Their Effects

Markets are increasingly expecting a rate hike, with overnight index swaps suggesting a 75% chance of a 10-basis-point increase at the BoJ’s December 2025 meeting. We believe an early move at the meeting on October 30th is likely, which could surprise the market and drive USD/JPY lower. This potential upside surprise may limit significant gains for the currency pair. In the US, the government shutdown has entered its second day, boosting safe-haven demand for the yen, reminiscent of the risk-off sentiment during the 35-day shutdown of 2018-2019. This situation is worsened by the latest US Non-Farm Payrolls report for September 2025, which showed a slowdown in job growth to 150,000, strengthening the notion that the Fed’s tightening cycle is over. The narrowing policy gap between a hiking BoJ and a steady Fed suggests a lower USD/JPY. For derivative traders, this outlook indicates that buying put options on USD/JPY could be a good move as it heads down toward the 146.50 support level. Selling call spreads, with resistance around 148.30, might also be a smart strategy to take advantage of the anticipated limited upside. These positions align with the fundamental view that the pair is generally trending downward. Create your live VT Markets account and start trading now.

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