On the eve of the Federal Reserve's interest rate decision, the US dollar fell below a two-month low against the Japanese yen
2025-09-17 16:15:38
USD/JPY continued its sideways trading pattern during early European trading on Wednesday, September 17th, after briefly dipping to 146.21, nearing its lowest level of 145.85 reached on July 24th due to USD weakness. Expectations that the Bank of Japan (BoJ) will stick to its policy normalization path, coupled with cautious market sentiment, contributed to the yen's strength as a safe-haven currency.
The Federal Reserve is scheduled to announce its decision at 2 p.m. local time on September 17 (2 a.m. Beijing time on September 18). Given signs of weakness in the labor market, it is expected to cut interest rates by at least 25 basis points.
Market expectations of a stronger Bank of Japan and the resulting narrowing of the U.S.-Japan interest rate differential also helped limit the depreciation of the low-yielding yen.
At the same time, the prospect of more aggressive policy easing by the Federal Reserve curbed the dollar's rebound and the upside potential of the USD/JPY exchange rate.
Yen bulls retreat to the sidelines ahead of key central bank events
A report released by the Japanese government earlier Wednesday showed that the trade deficit widened sharply in August from 118.4 billion yen to 242.5 billion yen. However, the actual deficit was lower than the previously estimated 513.6 billion yen due to a smaller-than-expected 0.8% drop in exports. The actual decline was only 1%, compared to a 2.6% drop in July and a forecast 1.9% drop. The final signing of the US-Japan trade agreement provides a degree of certainty for exporters.
Other details in the report showed that Japan's imports shrank by 5.2% in the month, a much larger decline than expected, indicating that domestic demand remains weak. In addition, the resignation of Japanese Prime Minister Shigeru Ishiba has added a layer of uncertainty, which may give the Bank of Japan more reason to slow the pace of interest rate hikes.
The Bank of Japan is expected to maintain its benchmark interest rate at 0.5% to counter domestic headwinds and global risks, including the impact of US tariffs. However, the market appears confident that the Bank of Japan will raise interest rates before the end of the year. In contrast, the market expects the Federal Reserve to resume its rate-cutting cycle on Thursday, lowering borrowing costs by 25 basis points.
In addition, the market has begun to digest the expectation that the Federal Reserve may cut interest rates twice more this year due to signs that the labor market is weakening. This has become a key driver of the recent decline in the US dollar. The US dollar index fell to its lowest point since early July (96.54) on Tuesday, dragging the US dollar against the yen below the 147 mark.
U.S. President Donald Trump has stepped up calls for a resolution to the conflict between Russia and Ukraine, urging Ukrainian President Volodymyr Zelensky to reach a deal to end the conflict and pressuring Europe to immediately halt purchases of Russian oil following weeks of repeated Ukrainian attacks on Russian oil facilities and a subsequent large-scale Russian military offensive on the southeastern Ukrainian city of Zaporizhia.
Meanwhile, Israel launched its long-planned ground offensive against Gaza City. On Tuesday, Israeli forces advanced deep into the densely populated city's core, which had been under heavy bombardment for weeks. Furthermore, Arab and Islamic leaders convened an emergency summit in Doha, Qatar, on September 9th to condemn Israel's attack on Hamas leaders, maintaining geopolitical risks.
USD/JPY holds above the 100-day moving average (146.18), which becomes a key line of defense for bulls
From a technical perspective, the overnight break below the 147.00 level and its confirmation by the market is seen as a new trigger point for USD/JPY shorts.
Furthermore, oscillators on the daily chart have started showing negative signs again, suggesting that the path of least resistance for the pair remains tilted to the downside.
If the exchange rate falls below the 100-day simple moving average (146.18), the significant short-term downward trend may trigger a period of consolidation below this point. Then, if there are no significant fundamental factors to support it, the currency pair may accelerate its decline to the intermediate support level of 145.35 and further to the psychological level of 145.00.
On the other hand, a subsequent rebound above the short-term resistance level of 146.70 could trigger a fresh influx of selling, potentially leading to resistance near the 147.00 round number. However, a sustained breakout above the 147.15-147.20 area could push USD/JPY above the 147.55 resistance level and further towards the 148.00 level. Subsequent resistance lies around the 149.00 level and the monthly high of 149.13.
(USD/JPY daily chart, source: Yihuitong)
At 15:56 Beijing time, the US dollar was trading at 146.60/61 against the Japanese yen.
The Federal Reserve is scheduled to announce its decision at 2 p.m. local time on September 17 (2 a.m. Beijing time on September 18). Given signs of weakness in the labor market, it is expected to cut interest rates by at least 25 basis points.
Market expectations of a stronger Bank of Japan and the resulting narrowing of the U.S.-Japan interest rate differential also helped limit the depreciation of the low-yielding yen.
At the same time, the prospect of more aggressive policy easing by the Federal Reserve curbed the dollar's rebound and the upside potential of the USD/JPY exchange rate.
Yen bulls retreat to the sidelines ahead of key central bank events
A report released by the Japanese government earlier Wednesday showed that the trade deficit widened sharply in August from 118.4 billion yen to 242.5 billion yen. However, the actual deficit was lower than the previously estimated 513.6 billion yen due to a smaller-than-expected 0.8% drop in exports. The actual decline was only 1%, compared to a 2.6% drop in July and a forecast 1.9% drop. The final signing of the US-Japan trade agreement provides a degree of certainty for exporters.
Other details in the report showed that Japan's imports shrank by 5.2% in the month, a much larger decline than expected, indicating that domestic demand remains weak. In addition, the resignation of Japanese Prime Minister Shigeru Ishiba has added a layer of uncertainty, which may give the Bank of Japan more reason to slow the pace of interest rate hikes.
The Bank of Japan is expected to maintain its benchmark interest rate at 0.5% to counter domestic headwinds and global risks, including the impact of US tariffs. However, the market appears confident that the Bank of Japan will raise interest rates before the end of the year. In contrast, the market expects the Federal Reserve to resume its rate-cutting cycle on Thursday, lowering borrowing costs by 25 basis points.
In addition, the market has begun to digest the expectation that the Federal Reserve may cut interest rates twice more this year due to signs that the labor market is weakening. This has become a key driver of the recent decline in the US dollar. The US dollar index fell to its lowest point since early July (96.54) on Tuesday, dragging the US dollar against the yen below the 147 mark.
U.S. President Donald Trump has stepped up calls for a resolution to the conflict between Russia and Ukraine, urging Ukrainian President Volodymyr Zelensky to reach a deal to end the conflict and pressuring Europe to immediately halt purchases of Russian oil following weeks of repeated Ukrainian attacks on Russian oil facilities and a subsequent large-scale Russian military offensive on the southeastern Ukrainian city of Zaporizhia.
Meanwhile, Israel launched its long-planned ground offensive against Gaza City. On Tuesday, Israeli forces advanced deep into the densely populated city's core, which had been under heavy bombardment for weeks. Furthermore, Arab and Islamic leaders convened an emergency summit in Doha, Qatar, on September 9th to condemn Israel's attack on Hamas leaders, maintaining geopolitical risks.
USD/JPY holds above the 100-day moving average (146.18), which becomes a key line of defense for bulls
From a technical perspective, the overnight break below the 147.00 level and its confirmation by the market is seen as a new trigger point for USD/JPY shorts.
Furthermore, oscillators on the daily chart have started showing negative signs again, suggesting that the path of least resistance for the pair remains tilted to the downside.
If the exchange rate falls below the 100-day simple moving average (146.18), the significant short-term downward trend may trigger a period of consolidation below this point. Then, if there are no significant fundamental factors to support it, the currency pair may accelerate its decline to the intermediate support level of 145.35 and further to the psychological level of 145.00.
On the other hand, a subsequent rebound above the short-term resistance level of 146.70 could trigger a fresh influx of selling, potentially leading to resistance near the 147.00 round number. However, a sustained breakout above the 147.15-147.20 area could push USD/JPY above the 147.55 resistance level and further towards the 148.00 level. Subsequent resistance lies around the 149.00 level and the monthly high of 149.13.
(USD/JPY daily chart, source: Yihuitong)
At 15:56 Beijing time, the US dollar was trading at 146.60/61 against the Japanese yen.
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