The USD/JPY currency pair has rebounded sharply, clawing back early losses to approach the 148.00 level during Friday’s European trading session. This resurgence comes as the US Dollar (USD) extends its winning streak for the third consecutive trading session, reflecting strong market confidence in the Greenback amid expectations of further monetary policy easing by the Federal Reserve (Fed). 

This well-prepared article from LFtrade, written by Eline Hamilton, highlights the most important aspects of the topic.

US Dollar Extends Gains as DXY Hits 97.63

The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, has been trending higher, climbing to 97.63 at the time of writing. The USD has benefited from renewed optimism among investors following the Fed’s recent interest rate cut and forward guidance suggesting additional rate reductions before year-end.

The DXY’s strength underpins the USD/JPY rebound, highlighting the influence of monetary policy divergence between the United States and Japan. Market participants are increasingly pricing in further Fed easing, which supports continued upside momentum for the USD against the JPY.

Fed Signals Further Interest Rate Cuts

The Federal Reserve cut its main interest rate by a quarter of a percentage point on Wednesday, lowering it to between 4.00% and 4.25%. Along with the rate adjustment, the Fed signaled a cautious approach, as its latest dot plot projects that rates could fall further to around 3.6% by the close of 2025.

This monetary policy guidance has strengthened the US Dollar, as investors anticipate a gradual easing cycle that could support economic growth while managing inflationary pressures. The USD’s rebound against the JPY reflects the market’s confidence in the Fed’s forward guidance, even as traders digest the potential pace and magnitude of future rate cuts.

Market Focus on Fed Commentary

All eyes are on San Francisco Fed President Mary Daly, who is set to speak at 18:30 GMT on Friday. Traders and analysts will be watching her remarks carefully for any hints on how the Fed might adjust interest rates, including the pace and size of possible future cuts. Any hints of accelerated easing could further boost the USD, while a cautious stance may temper short-term gains.

The USD/JPY pair is highly sensitive to US monetary policy cues, and even minor signals from Fed officials can trigger significant intraday volatility. Traders remain particularly focused on interest rate expectations, inflation data, and economic growth indicators, which collectively influence the pair’s trajectory.

BoJ Holds Rates Steady, Supporting Yen Gains

Earlier in the day, the USD/JPY pair experienced a sharp pullback as the Japanese Yen (JPY) strengthened following the Bank of Japan’s (BoJ) monetary policy announcement. The BoJ maintained its short-term interest rate at 0.5%, in line with market expectations, and reiterated its forward guidance, leaving the door open for potential future rate hikes.

This statement signals a cautious but flexible approach, reinforcing the notion that the BoJ is committed to supporting inflation while monitoring economic conditions. The Yen’s brief strength was a reaction to these comments, but the subsequent USD rebound indicates that market participants favor the dollar’s upside potential in the near term.

Technical Outlook for USD/JPY

From a technical perspective, the USD/JPY pair shows strong intraday recovery momentum, reclaiming the 148.00 psychological level. Short-term support appears near 147.50, while immediate resistance aligns with the 148.20–148.30 zone, where previous intraday highs were recorded.

The pair’s rebound has been fueled by the DXY rally, and further US Dollar strength could propel USD/JPY beyond 148.50 in the coming sessions. Conversely, a surge in Japanese Yen buying or a dovish Fed pivot could limit further upside, reinforcing the importance of macro and central bank developments in driving pair movements.

Key Drivers: Fed vs BoJ

The USD/JPY dynamics remain highly influenced by the ongoing monetary policy divergence between the Federal Reserve and the Bank of Japan. While the Fed signals easing, the BoJ remains cautious, offering a contrast that sustains trading opportunities for the pair.

Investors will closely monitor:

• US economic indicators: inflation, employment, and retail sales
• Fed commentary and potential interest rate adjustments
• BoJ policy signals and Yen interventions
• Global risk sentiment, which can drive safe-haven flows into the JPY

Conclusion

The USD/JPY has successfully recovered early losses and reclaimed levels near 148.00, driven by the US Dollar’s extended winning streak and investor focus on the Fed’s interest rate trajectory. The pair reflects the ongoing policy divergence between the Fed and the BoJ, with the DXY acting as a key barometer of USD strength.

As the market awaits Fed commentary from Mary Daly and monitors BoJ policy signals, USD/JPY traders will remain attentive to interest rate expectations, macroeconomic data, and technical resistance levels that may influence the pair’s near-term movements. For now, the upside momentum in the USD/JPY remains intact, with a bullish bias as long as the US Dollar continues to extend its gains.