Positioning and Risk Outlook

In my view, warnings of yen intervention, a hawkish BoJ policy stance, and expectations of Fed rate cuts support a negative price trajectory. However, Japan’s upcoming election, US economic indicators, and Fed Chair Powell’s speech will be key, given recent price action.

Furthermore, a higher BoJ neutral interest rate level (potentially 1.5%-2.5%) would signal a narrower US-Japan interest rate differential. A sharply narrower rate differential may trigger a yen carry unwind, as seen in mid-2024. An unwind of yen carry trades would likely send USD/JPY toward 140 over the longer term.

However, upside risks to the bearish outlook include:

• Dovish BoJ rhetoric and a lower neutral interest rate (potentially 1% – 1.25%).
• Fed Chair Powell downplays the chances of an H1 2026 cut.
• Robust US economic data dampens bets on an H1 2026 Fed rate cut.

These factors would send USD/JPY higher. However, ongoing warnings of yen intervention are likely to cap the upside at the 155 level.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Conclusion: Politics, the BoJ, and the Fed in the Spotlight

In summary, the USD/JPY trends will hinge on Japan’s election result, Prime Minister Takaichi’s fiscal spending plans, the BoJ’s policy stance, the Fed’s rate path, and Trump’s tariff policies.

A higher BoJ neutral rate (1.5%-2.5%) would signal a hawkish BoJ rate path, strengthening the yen. Meanwhile, Prime Minister Takaichi’s snap election will also be crucial for the near-term USD/JPY trends, given her fiscal policy goals. Additionally, dovish Fed rhetoric would suggest narrower rate differentials, reaffirming the bearish medium-term outlook for USD/JPY.

A stronger yen and the unwinding of yen carry trades would likely push USD/JPY toward 140 over the longer 6-12 month timeline.

For more in-depth analysis, review today’s USD/JPY trading setups in our latest reports and consult the economic calendar.