The is currently trading near 144.40 as investors weigh diverging monetary policy trajectories between the and the Bank of Japan. While both central banks are operating in a climate of elevated uncertainty, their approaches remain sharply different, shaping the currency dynamics we see today.
In the United States, inflation continues to display resilience. Although headline readings have moderated somewhat, core inflation, especially in services and shelter, remains stubbornly above the Fed’s 2% target. This persistence has led the Federal Reserve to delay the timing of its first rate cut, with markets now expecting potential easing to be postponed until late 2025. Consequently, the dollar has retained strong support, particularly against lower-yielding currencies like the yen.
A key development in recent weeks has been the surge in Japan’s 30-year government bond yields, which soared above the 3.00% level, reaching their highest mark in over 20 years, before retreating slightly to around 2.88%. This sharp increase is a reflection of multiple factors: fading demand from institutional buyers such as life insurers, rising inflation expectations, and a broader reassessment of long-term borrowing costs.
Additionally, the Bank of Japan’s gradual normalization, including the end of Yield Curve Control and the exit from negative , has added upward pressure to Japanese yields.
Importantly, this yield rise is driven by domestic factors, not by issues like the U.S. fiscal deficit, rising U.S. debt, or developments in U.S. Treasuries. While global bond markets remain interlinked, Japan’s long-end yield curve is adjusting primarily to domestic inflation expectations and the possibility of further incremental tightening. That said, the yield gap between the U.S. and Japan remains significant, especially at the short and intermediate ends, which continues to underpin dollar strength in relative terms.
In contrast to the U.S, Japan still faces a fragile recovery. remain weak, is subdued, and recent figures suggest contractionary momentum. As a result, the BoJ is expected to proceed cautiously with any additional policy tightening, dampening the potential for a sustainable yen rebound unless external forces drive the move.
Technical Overview: Key Levels and Market Structure
On the technical front, USD/JPY is currently hovering around 144.40 on the daily timeframe. The pair recently staged a rebound from the lower Bollinger Band at 141.77, suggesting a potential short-term oversold condition. However, the price remains below major moving averages and faces immediate resistance at the EMA 20, currently positioned at 144.46. Overhead resistances include the EMA 50 at 145.62 and the EMA 100 at 147.56, both aligning with previous swing highs and acting as formidable technical ceilings.
The MACD histogram remains in negative territory, although it is showing mild bullish convergence, indicating weakening bearish momentum rather than a clear trend reversal. Similarly, the Stochastic RSI has lifted from oversold levels and now sits near 28.43, suggesting some upside potential, though without a confirmed bullish crossover.
On the downside, initial support is found at the lower Bollinger Band near 141.77, followed by the swing low at 141.00, and then the psychological and historical level around 140.30. On the upside, the EMA 20 near 144.45 marks the first resistance, followed by 145.62 (EMA 50), and finally the EMA 100 and prior highs between 147.55 and 147.89.
Market Assessment and Scenarios
The outlook for USD/JPY remains cautiously neutral to bearish in the short term. A sustained break above the 145.60–146.00 zone would be required to confirm a shift in momentum and potentially signal a medium-term trend reversal. Until that occurs, the pair remains vulnerable to renewed selling pressure, especially if the FOMC minutes tonight indicate a softer Fed stance or heightened concern about growth.
From a broader perspective, the combination of sticky U.S. inflation, rising global bond yields, and the BoJ’s gradual exit from ultra-loose policy suggests ongoing volatility in USD/JPY. However, with the Fed still on hold and Japanese policymakers unlikely to tighten aggressively, the structural forces continue to lean in favor of the U.S. dollar, unless Japanese data surprises meaningfully to the upside.
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Michel Saliby is a Senior Market Analyst at FxPro.
