USD/JPY Pulls Back as Yen Shorts Cover, BOJ Tightening Bets Rise
USD/JPY ended its six-day winning streak on Tuesday, sliding to a New York session low of 153.17 after earlier touching 154.34 in Asia. The decline was fueled by a combination of risk-off sentiment, falling U.S. equities, and oil prices ahead of Wednesday’s Fed decision. Yen shorts also pared back positions amid growing expectations for potential Bank of Japan tightening in early 2025, while one-week risk reversals indicated increased demand for downside yen protection. Japan’s parliament passing a $90 billion supplementary budget to address inflation further bolstered bets that BOJ policy could shift sooner than previously anticipated.
Technical Analysis: Key Levels in Focus
Technically, USD/JPY is approaching a key support zone between 152.12-31, which includes the 200-DMA, daily Ichimoku cloud top, 50-DMA, and 21-DMA. A failure to hold above this zone could signal a shift in momentum, with downside targets potentially extending toward 151.50. For bulls to regain control, the pair must clear near-term resistance between 154.48 (Monday high) and the psychological 155 level. Until a breakout occurs, the thickening daily Ichimoku cloud provides a strong base for continued range-bound trading, but the bearish tilt remains for now.
Focus Turns to Fed and BOJ Decisions
Market focus now turns to the Fed and BOJ decisions later this week. While the Fed is expected to hold rates steady, its tone on inflation and future easing will be closely monitored. Any dovish signals from the Fed could weigh on U.S. yields and cap USD/JPY upside. Conversely, the BOJ is expected to hold steady, but rising speculation around tightening in Q1 2025 could lend further support to the yen, particularly if risk sentiment deteriorates. A close below 152.12 would shift momentum in favor of yen bulls, while a bounce above 155 remains a challenge for now.
