USD/JPY has been holding within a tight range as trading volumes remain subdued following Tokyo’s holiday. The pair, currently tracking U.S. Treasury yields, saw some upward pressure on Monday after better-than-expected U.S. services PMI data. However, dovish commentary from Federal Reserve officials, including Raphael Bostic and Austin Goolsbee, reaffirmed market expectations for further rate cuts by the end of the year. These dovish signals from the Fed, alongside a flat Treasury yield curve that may steepen, are likely to keep USD/JPY in check as volatility remains low. The broader risk tone continues to improve, reducing demand for safe-haven currencies like the yen, though traders may need to wait for key events later this week to see any significant moves.
From a technical perspective, USD/JPY remains range-bound, with support at the 141.75 level from September 6 and resistance at the 145.55 high from September 4. The pair’s upside momentum has stalled near these levels, but upcoming U.S. PCE inflation data and Japan’s Liberal Democratic Party (LDP) leadership election could reignite volatility. Traders are also eyeing Tokyo’s September CPI release for further clues on the Bank of Japan’s policy path. A move above the 145.55 resistance level could trigger a test of the 147.20 September high, while a break below the 141.75 support level would bring the 2023 low of 139.58 into focus. Given the subdued trading volumes and the fact that key events are yet to unfold, USD/JPY is likely to remain in its current range in the near term.
As the week progresses, several factors could influence USD/JPY’s trajectory. The flattening U.S. Treasury yield curve, driven by Fed rate cut expectations, is keeping volatility under wraps and limiting upward momentum in the dollar-yen pair. However, a combination of quarter-end flows, portfolio adjustments, and political developments in Japan could add some turbulence. One-week volatility has dipped to around 10.5%, suggesting limited near-term price swings, but key economic data releases, including U.S. PCE and Tokyo CPI, could trigger sharper moves. Additionally, the LDP leadership election results could introduce political uncertainty, which may further influence yen movements and push USD/JPY out of its current range.