The USDJPY pair is currently under pressure due to US CPI reports and jobless claims data. Initial claims have hit highs not seen since 2021, indicating a weaker labor market. Nevertheless, the US dollar is staying in a trading range, likely due to excessive bearish positions. If economic activity picks up, the possibility of rate cuts may be reevaluated, which could support the dollar. However, stronger economic data might be needed to change current trends. For the Japanese yen, there have been no major changes in fundamentals. Its recent gains are driven by expectations of a less aggressive Federal Reserve. The yen’s strength relies on weak US data or rising inflation in Japan, which might lead to more rate hikes. The Bank of Japan is expected to keep interest rates steady in its upcoming policy meeting, focusing on future guidance and possible rate increases.

Trend Analysis And Expectations

On the daily chart, USDJPY is trading within a range as investors await decisions from the FOMC and BoJ. Buyers are looking to push the pair up to 151.00, while sellers eye the 140.00 level. The 4-hour chart shows ongoing range-bound trading since August. Traders are hoping for a breakout, but the 1-hour chart reveals limited clues due to fluctuating price action. Key upcoming events to watch include US Retail Sales, FOMC policy announcements, US Jobless Claims, and Japanese CPI data. The US dollar is struggling to weaken against the yen despite some dovish economic signals. Last week’s Labor Department data indicated a slight rise in initial jobless claims, supporting the idea of a cooling labor market. Yet, with August’s CPI report showing still high headline inflation at 3.4%, the outlook is uncertain. This scenario places the Federal Reserve in a tough spot ahead of its meeting on Wednesday. The market expects at least two more rate cuts by the end of 2025, but we may have reached the limits of dovish pricing. If economic activity strengthens, any planned rate cuts for 2026 could be reconsidered, which would bolster the dollar. On the yen side, attention turns to the Bank of Japan’s meeting this Friday. Japan’s core CPI, as reported by their Statistics Bureau, has been over the 2% target for nearly 18 months. Remember, the BoJ has only raised rates twice since it ended its negative interest rate policy in March 2024, so traders are looking for any hints of a potential third hike.

Potential Trading Strategies

For derivative traders, the tight range in USDJPY presents an opportunity to sell volatility. With the pair stuck in a range, selling strangles by writing out-of-the-money puts and calls could help collect premiums. This strategy benefits if the pair remains range-bound through upcoming central bank announcements. On the other hand, the FOMC and BoJ meetings this week are significant events that could trigger a breakout. Traders anticipating a strong movement but unsure of the direction might consider buying long straddles. This approach profits from a major price swing, either up or down, after the news breaks. We’re closely monitoring the important trendline support established since early 2025, which serves as a key level for positioning. Setting strike prices for put options below this trendline offers a defined-risk way to play for a potential breakdown. Meanwhile, a break above the recent highs near the 151.00 level could be the target for traders using call options. Create your live VT Markets account and start trading now.

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