USD/JPY Compression Points to a Bigger Move as BoJ and NFP Loom

Last week, the US Federal Reserve released its and cut interest rates by 25 basis points, matching market expectations.

The year still has major events ahead. Later this week, the Bank of Japan will decide on . Markets see a strong chance, close to 90%, of a 25 basis point rate hike.

The economic calendar also remains busy. Key updates include delayed data from the and . Investors currently expect rates to stay where they are. Still, weak economic data can quickly shift expectations, as seen in recent market moves and sharp changes in rate forecasts.

At the same time, the pair remains range-bound as traders wait for the Bank of Japan decision.

Japan Rate Hike Seen as All but Certain

As explained in the analysis two weeks ago, the Bank of Japan has been sending clear hawkish signals to prepare markets for a rate hike. This approach has worked. A hike now feels expected rather than surprising.

These signals have also capped gains in the USD/JPY pair, which remains in a sideways range as markets wait for the decision. If the Bank of Japan delivers the expected hike, attention will shift to the policy statement and any hints about when the next increase could come in what remains a slow tightening cycle.

It would be unrealistic to expect the Bank of Japan, which usually moves cautiously, to raise rates at every meeting early next year. A more likely trigger comes from spring wage negotiations, which play a major role in shaping inflation. Current forecasts point to a 5 percent wage increase, according to Japan’s largest labor union representing millions of workers.

Macroeconomic Calendar Brings Long-Awaited Data

Today, Tuesday, fresh data from the US labor market will be released. Because of the timing, markets only have a consensus estimate for the unemployment rate, which is expected to stay unchanged at 4.4 percent year on year.

On Thursday, new data on price changes in the US economy will also be published. These figures matter, yet the Federal Reserve’s current messaging shows a stronger focus on the labor market. Last week interest rate cut supports this view and highlights jobs data as the main priority.

The week ends with Japan inflation data on Friday and the Bank of Japan key interest rate decision. Together, these events should set the direction for the USD/JPY pair through at least the end of the year.

Where Is USD/JPY Headed Next?

USD/JPY is trading in a short-term sideways range, with support near 155 yen per dollar. A clear break below this level could trigger a deeper move lower, with the main target near 151 yen per dollar, where the rising trend line and key support meet.

On the upside, the 158 to 159 yen per dollar zone is the key resistance for buyers. A break above this area would open the door for a move toward the long-term highs.

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