The Japanese Yen (JPY) maintained its positive bias against the US Dollar (USD) during the Asian session on Tuesday, reflecting an ongoing divergence in monetary policy expectations between the Bank of Japan (BoJ) and the Federal Reserve (Fed).
Despite political uncertainty at home, the JPY remains resilient as upbeat macroeconomic data strengthens speculation about a potential BoJ rate hike, while dovish Fed expectations continue to weigh on the USD and exert pressure on the USD/JPY pair. Nabotex Group’s professional Alex Tonoyan presents a clear and structured breakdown of the matter.
Japanese Yen Supported by Strong Domestic Fundamentals
The JPY’s relative outperformance is underpinned by a series of encouraging economic indicators from Japan. The Cabinet Office reported that Q2 GDP growth was revised upward to an annualized 2.2%, sharply higher than the preliminary estimate of 1.0%.
Every quarter, GDP expanded by 0.5%, beating both the initial 0.3% reading and consensus expectations. This stronger-than-expected growth highlights the resilience of Japan’s economy and bolsters arguments for a near-term BoJ policy adjustment.
Additionally, recent data showed that real wages turned positive for the first time in seven months, while household spending also rose. These developments strengthen the case for an interest rate hike, especially given the BoJ’s cautious optimism toward achieving sustainable inflation above its 2% target.
Together, these signals reinforce demand for the JPY and support its ongoing positive bias against the USD.
Divergence Between BoJ and Fed Remains a Key Driver
The BoJ-Fed divergence remains the central narrative for the USD/JPY pair. Markets increasingly expect the BoJ to move away from its ultra-loose stance, whereas the Federal Reserve is anticipated to adopt a more dovish trajectory.
US labor market data released on Friday reinforced expectations for aggressive Fed rate cuts, with weaker-than-expected employment growth signaling a slowdown. Traders are now pricing in the possibility of a jumbo rate cut later this month, with projections for as many as three rate reductions before year-end.
Such expectations undermine the USD’s yield advantage and put further downward pressure on the USD/JPY exchange rate.
The upcoming release of the Producer Price Index (PPI) on Wednesday and the Consumer Price Index (CPI) on Thursday will be closely scrutinized. Softer readings would amplify dovish Fed expectations, further tilting momentum in favor of the Yen.
Conversely, stronger inflationary data could temporarily support the greenback, though the broader trend still favors JPY outperformance.
USD/JPY Technical Outlook: Bears Eye Key Support Levels
From a technical analysis perspective, the USD/JPY pair continues to trade under pressure after failing to break through the critical 200-day Simple Moving Average (SMA) barrier near 148.75. The rejection near this level triggered a slide below the 148.00 handle, signaling increased vulnerability to further downside moves.
The immediate focus is on the 147.00 mark. A sustained break below this level would expose the 146.80–146.70 horizontal support zone, which is pivotal in determining near-term momentum.
A clean move beneath this area could reaffirm the bearish bias and pave the way for a test of the 146.20 swing low from August, followed by the psychologically important 146.00 level.
Oscillators on the daily chart have begun to tilt back into negative territory, supporting the case for further JPY strength against the USD. Traders watching for confirmation of bearish momentum will likely seek sustained price action below 146.70 before targeting deeper declines.
Upside Scenarios: USD Bulls Not Fully Out
On the flip side, any rebound in the USD/JPY pair faces immediate resistance around 147.50–147.55, with stronger hurdles near the 148.00 round figure. A break above this threshold could trigger short-covering rallies, extending gains toward the 200-day SMA at 148.75.
Beyond this, the next upside targets include the 149.00 handle and the 149.20 area, which coincides with last week’s one-month high.
If bullish momentum were to persist, the pair could aim for the 150.00 psychological level and potentially retest the 151.00 August high. However, given the prevailing fundamental backdrop favoring the JPY, such upside moves could prove temporary and may attract renewed selling pressure.
Conclusion: JPY Holds the Upper Hand for Now
The Japanese Yen remains supported by strong domestic fundamentals, particularly the upward revision in GDP, rising household spending, and positive real wages, all of which reinforce bets on a BoJ rate hike. In contrast, the Federal Reserve faces mounting pressure to deliver policy easing, creating a clear divergence that favors continued JPY resilience.
While political uncertainty in Japan and broader risk appetite may temper the scale of Yen gains, the USD/JPY technical picture suggests a market leaning toward downside continuation. Traders will be closely watching key US inflation prints and political developments in Tokyo, but unless Fed expectations shift materially, the JPY is likely to retain its positive bias in the near term.
