USD/JPY: Fed, BoJ Divergence Could Fuel Reversal With Key Support at 146 in Focus

In the last few days, investors received several important updates that affected the currency pair. The focus remains on central banks, both of which kept interest rates unchanged. But they are now moving in different directions — the Bank of Japan is expected to raise rates soon, while the is likely to cut rates in September.

The biggest impact came from US labor market data. A downward revision in past made the data look worse than expected, which weakened the . As a result, selling pressure on USD/JPY has increased, and the recent upward move in the pair may be coming to an end.

Japan to See Another Rate Hike in October?

As expected, the Bank of Japan kept unchanged and continued its cautious monetary policy, mainly due to concerns about the trade war. However, that uncertainty has eased after Japan and the US agreed on the terms of their trade deal, which Governor Ueda highlighted in the BOJ’s statement.

Meanwhile, remains above target. The bank raised its average core inflation forecast for the year from 2.2% to 2.7%. Policymakers also noted that inflation in food prices is likely to persist for a while, but they do not expect it to significantly affect core inflation.

Meanwhile, across the Pacific, the Federal Reserve has also kept steady and offered no clear guidance on future changes. At the same time, weaker labor market data from the US has pushed the chances of a rate cut in September to above 90%.

Before that, though, several key economic reports from the US are due, especially on . So far, the data shows that the slowdown in inflation has started to lose momentum. If the upcoming numbers come in higher than expected, the Federal Reserve could find itself in a tough spot—balancing signs of a slowing economy with inflation that remains above its target. On top of this, political pressure on the Fed Chair and growing opposition at home could end up pushing the central bank closer to cutting rates.

USD/JPY Technical Analysis

Friday’s US labor market data triggered a sharp drop in the US dollar, pushing USDJPY lower. The next likely move for sellers is to test the local support zone near 146 yen per dollar.

If sellers manage to break below 146, the next support levels to watch are 143 and 140 yen per dollar. On the upside, 151 remains a key resistance level that would challenge any bearish momentum.

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