The US dollar faced renewed pressure this week, while the Japanese yen emerged as one of the strongest performers in the foreign exchange market. The decline in US bond yields and falling oil prices are typically beneficial for energy-importing countries like Japan, providing support to the yen. However, the real driving factor was the US government shutdown. With no signs of a quick resolution, markets are bracing for a prolonged standoff, which could weaken consumer confidence and exacerbate concerns over job security. As a result, the USD/JPY pair is likely to remain slightly bearish in the near term.
The US dollar is under dual pressure from political and data risks.
As traders focus on the US government’s budget impasse, the dollar has continued its steady decline. Although the government shutdown was anticipated, it still had tangible impacts, most notably the delay in the release of key labor market data. With the Federal Reserve currently ‘flying blind’ on employment data, any attempts at a short-term rebound in the dollar are likely to be fleeting.
Expectations for interest rates have shifted, with markets now anticipating approximately two rate cuts by the Fed before the end of the year, and cumulative cuts exceeding 100 basis points by 2026. This adjustment reflects both recent robust data and lingering concerns about the labor market. Should forthcoming data disappoint, downside risks for the dollar will remain significant.
Data release schedules disrupted.
Although the ADP private employment data and ISM Manufacturing Index may still be released today, the weekly initial jobless claims and September nonfarm payroll data are likely to be postponed. The ADP employment report showed a decrease of 32,000 jobs, below the expected increase of 50,000, creating a bearish sentiment for the dollar.
The ISM Manufacturing Index is expected to come in slightly below 50.0. Earlier this week, softening consumer confidence figures and a weak Chicago Purchasing Managers’ Index (PMI) added further pressure on the dollar, underscoring the fragility of current market sentiment.
The yen is gradually gaining upward momentum.
The yen is becoming the clearest beneficiary of the current market turmoil. The USD/JPY exchange rate has broken below the 147.00 level, and with neither the Democratic nor Republican parties showing willingness to compromise, this deadlock may persist. If the impasse drags on, layoffs and distorted employment data could further dampen market sentiment, reinforcing the bearish outlook for USD/JPY.
Aside from U.S. political factors, the overall market environment is also favorable for the yen. Currency pairs such as GBP/JPY and CAD/JPY are under pressure; meanwhile, the Bank of Japan has signaled a gradual shift toward tighter monetary policy, while the Federal Reserve moves toward rate cuts, with narrowing interest rate differentials likely to continue supporting the yen.
USD/JPY Forecast: Technical Outlook
(USD/JPY Daily Chart Source: Easy Forex)
From a technical perspective, after a volatile summer, the USD/JPY forecast has turned bearish. The bears have broken through the recent low around 147.50, triggering stop-loss selling, and breached the initial downside target at 147.00. If the USD/JPY exchange rate continues to trade below 147.50, it may further decline in the short term, potentially testing 146.30, 146.00, and possibly even reaching 145.00.
On the upside, the immediate resistance level is located at 147.50, followed by the 148.50–148.65 range, with the key psychological threshold of 150.00 positioned higher.
At 21:29 Beijing Time, USD/JPY was trading at 146.735/743, down 0.72%.
