FX.co ★ USD/JPY. Analysis and Forecast

The Japanese yen weakens, dropping below the key level of 152.00 against the U.S. dollar for the first time since July 31. In the absence of intervention from Japanese authorities, uncertainty remains about the timing and pace of further interest rate hikes by the Bank of Japan, which is exerting significant pressure on the yen. Additionally, recent surveys suggest that public opinion indicates the ruling Liberal Democratic Party (LDP) of Japan may lose its majority in the upcoming general elections on October 27. This heightens doubts about the Bank of Japan's ability to raise interest rates this year, thereby continuing to pressure the yen.

On the U.S. dollar side amid prospects of a slower pace of rate cuts by the Federal Reserve, the dollar index has continued its upward trend observed since early October, reaching its highest level since early August.

According to the CME Group's FedWatch tool, there is nearly a 90% probability that the U.S. Federal Reserve will cut borrowing costs. The expected reduction is by 25 basis points in November. Additionally, increased speculation about former President Donald Trump's chances in the upcoming U.S. presidential elections on November 5 fuels speculation about the potential implementation of inflation-inducing tariffs. Such news could encourage the Fed to slow the pace of its monetary easing.

These expectations have been a major driver behind the recent rise in U.S. Treasury yields to their highest level in three months. Naturally, this continues to support the U.S. dollar, reinforcing the short-term bearish outlook for the Japanese yen and suggesting that the path of least resistance for the USD/JPY pair is upward.

However, prevailing geopolitical risks from ongoing conflicts in the Middle East could lend some support to the yen as a safe-haven currency, potentially curbing the appreciation of the USD/JPY pair.

However, the fundamental backdrop suggests that any significant corrective decline in the pair could be seen as a buying opportunity.

From a technical perspective, yesterday's move beyond the resistance at 150.80, coupled with a rise above the convergence of the 100-day and 200-day SMA, and a break above the critical 200-day simple moving average (SMA), was viewed as a new trigger for the bulls. However, RSI (Relative Strength Index) values on the daily chart indicate slightly overbought conditions, which warrants caution for USD buyers in the USD/JPY pair. Therefore, it would be prudent to wait for a short-term consolidation or moderate pullback before positioning for the next upward move. Nonetheless, the USD/JPY pair is poised to rise further toward the 153.00 level and potentially beyond.

On the other hand, the 152.00 level now acts as support against immediate declines, below which a corrective pullback could extend toward the 200-day SMA. Any further decline toward the 151.00 level could be considered a buying opportunity. However, a decisive break below 150.80 would indicate that the upward momentum has exhausted itself, shifting the bias in favor of the bears.