05.11.202520:10 Forex Analysis & Reviews: USD/JPY. Analysis and Forecast

Today, the pair is attracting buyers amid a stronger U.S. dollar. The Japanese yen is weakening due to uncertainty about the timing of the Bank of Japan's next rate hike, driven by expectations that the new Prime Minister Sanae Takaichi will pursue an aggressive fiscal spending policy.

An additional factor is the decline in expectations for a rate cut at the Federal Reserve's December meeting, which also puts pressure on the yen. Meanwhile, the Bank of Japan has so far shown no determination to continue raising its key rate, given the pro-stimulus stance of the new Prime Minister. This keeps the yen weak against the bullish U.S. dollar.

The core consumer price index (CPI) for Tokyo, released last Friday, has remained above the Bank of Japan's 2% target for more than three and a half years, signaling a need for further monetary tightening.

Bank of Japan Governor Kazuo Ueda noted last week that the likelihood of a base-case rate hike scenario has increased and expressed confidence that the central bank will continue to raise its key rate as long as economic and price developments align with forecasts.

At the same time, possible currency interventions by Japanese authorities could help limit deeper yen losses, although steady U.S. dollar buying continues to support demand for the USD/JPY pair.

Last week, Federal Reserve Chair Jerome Powell dismissed market expectations of a December rate cut, which helped strengthen the U.S. dollar index (DXY) to a three-month high. However, the prolonged U.S. government shutdown is preventing the dollar from rising further.

Investors remain concerned that a lengthy shutdown could negatively affect the economy, so caution is warranted when it comes to continued dollar strengthening and further gains in the USD/JPY pair.

From a technical standpoint, the breakout of the 153.25–153.30 level last week and the subsequent move above the key psychological level of 154.00 were the main drivers for the bulls. Daily oscillators remain positive, confirming the bullish outlook.

On the other hand, a corrective pullback is expected to find support near the 154.00 round level, followed by 153.65. Below that, the former resistance zone at 153.30–153.25, now turned into support, comes into play, as well as the 153.00 level. If that level is broken, the path will open toward the next round level at 152.00, with an intermediate pause around 152.15.