31.10.202415:32 Forex Analysis & Reviews: USD/JPY. Analysis and Forecast

After the Bank of Japan's recent announcement, the USD/JPY pair came under strong selling pressure in response to hawkish hints from the Bank of Japan, dropping to the 152.00 level and hitting a weekly low.

As anticipated, amid unusual political turbulence following Japan's snap elections on Sunday, the Bank of Japan opted to leave its monetary policy parameters unchanged. However, in its accompanying statement, the Bank reiterated that if the economy continues a moderate recovery and prices move as forecast, it would maintain its path of raising borrowing costs. As a result, this statement strengthened the Japanese yen.

Bank of Japan Governor Kazuo Ueda noted that if economic and price expectations are met, the Central Bank will continue to adjust the degree of easing while closely monitoring financial and currency markets and their impact on the economy and prices. Such comments maintain the possibility of a rate hike at the Bank of Japan's next monetary policy meeting, which, combined with a softer risk tone, benefits the safe-haven yen.

Meanwhile, the U.S. dollar reached a weekly low on Wednesday, pulling USD/JPY away from its three-month peak. Despite expectations of a slower pace of rate hikes by the Federal Reserve, the dollar's decline appears restrained. These expectations were reinforced by Wednesday's U.S. macroeconomic data, which underscored a strong economy, supporting the outlook for a more cautious policy easing by the Fed.

Additionally, further increases in U.S. Treasury yields, fueled by concerns that spending plans by Vice President Kamala Harris and Republican candidate Donald Trump could widen the U.S. budget deficit, should lend support to the dollar. This fundamental backdrop suggests exercising caution before confirming a peak in spot prices and preparing for potential declines.

From a technical perspective, the recent decline follows repeated failures to gain traction beyond the 61.8% Fibonacci retracement level of the July to September drop. Moreover, the Relative Strength Index (RSI) on the daily chart is near the overbought zone, which calls for some caution before placing new bullish positions.

However, any further weakness below the 152.00 round level should find substantial support around 151.40, before the 151.00 level. A continuation of selling would expose the breakout point at the confluence of the 100- and 200-day simple moving averages (SMAs) and the 50% Fibonacci level, now serving as a key pivot point and strong support base for USD/JPY. A decisive break of this level would set the stage for further short-term declines.

On the other hand, the 152.50–152.55 range now acts as an immediate resistance before the round level of 153.00. Sustained strength beyond this could lift USD/JPY back towards the 153.90 level or the July 31 high, reached earlier this week. A subsequent break above the 154.00 level would be seen as a new bullish trigger, pushing spot prices towards the resistance level at 154.35, with further potential towards the psychological 155.00 level and the late-July swing high at 155.20.