Key Points
- USD/JPY dropped to the 153.500–154.000 range as expectations for a 25bp BOJ rate hike continued to strengthen the Japanese yen.
- Japan’s Q2 GDP growth was revised higher to an annualised 1.4%, reinforcing expectations that the BOJ may continue raising interest rates.
- Higher Japanese yields are putting pressure on yen-funded carry trades, as the cost of holding short yen positions becomes less attractive.
- Upcoming US Consumer Price Index (CPI) data remains a key driver for USD/JPY, with stronger inflation potentially supporting the US dollar, while weaker inflation would support the yen.
Market Move
USD/JPY traded lower after failing to sustain momentum above the 154.000 level, with the pair falling towards 153.500 during the latest session.
USD/JPY moved below its short-term 9-period moving average, suggesting weaker near-term momentum. After trading around the 153.700–153.800 zone, USD/JPY faced renewed selling pressure and moved closer to the session low at 153.528.
Why Traders Are Watching USD/JPY
USD/JPY remains in focus as traders assess the changing interest rate outlook between the US and Japan.
Expectations for a 25bp Bank of Japan (BOJ) rate hike to 1.25% at the 17–18 September meeting have increased, and Japan’s Q2 Gross Domestic Production (GDP) growth was also revised higher to an annualised 1.4% from 1.1%, supported by stronger business investment.
Higher Japanese yields are reducing the appeal of yen-funded carry trades, supporting yen strength and creating downside pressure on USD/JPY .
Meanwhile, the US dollar remains sensitive to upcoming US CPI data, which could influence expectations for Federal Reserve policy. Stronger inflation could support USD/JPY, while softer inflation may increase pressure on the pair.
Key Trading Levels
| Scenario | Level to Watch |
| Resistance | 154 |
| Near-term Resistance | 154.300–154.400 |
| Current Price Area | 153.500–153.600 |
| Support | 153.5 |
| Further Support | 153 |
USD/JPY is currently testing the 153.500 support area after failing to hold above 154.000, making these two levels important for the next directional move.
A break below 153.500 could signal continued selling pressure and expose the pair towards 153.000, while a recovery above 154.000 may suggest that buyers are regaining control. Traders will also monitor the 154.300–154.400 resistance zone, where renewed selling pressure could emerge.
Bullish and Bearish Setups
| Scenario | What to Watch |
| Bullish USD/JPY | USD/JPY stabilises above 153.500 and recovers towards 154.000. A break above 154.400 could signal renewed buying. |
| Bearish USD/JPY | USD/JPY remains below 154.000 and breaks below 153.500, which could expose the pair towards 153.000 and lower levels. |
The short-term outlook for USD/JPY depends on whether the pair can defend the 153.500 support level or regain momentum above 154.000.
A bullish scenario would require USD/JPY to stabilise above 153.500 and break back above 154.000, potentially opening the way towards 154.300–154.400.
A bearish scenario remains in focus if the pair stays below 154.000 and breaks below 153.500, which could extend losses towards 153.000 as the yen continues to strengthen.
Disclaimer
The price levels and market scenarios above reflect the author’s assessment at the time of writing. They do not represent financial advice or an official recommendation from VT Markets. Traders should conduct their own analysis and manage risk carefully.
USD/JPY Prediction: What’s next?
USD/JPY’s future direction will likely depend on upcoming US inflation data and whether BOJ rate hike expectations continue to strengthen.
If expectations for a September BOJ rate hike continue to rise, stronger yen demand from higher Japanese yields and carry trade unwinding could keep USD/JPY under pressure. A sustained break below 153.500 would strengthen the bearish outlook and increase the likelihood of a move towards 153.000.
Conversely, stronger US CPI data could support USD/JPY by reinforcing expectations for a more cautious Federal Reserve approach towards rate cuts. In this scenario, the pair could attempt a recovery towards 154.000–154.400.
Until further data provides direction, 153.500 support and 154.000 resistance remain the key short-term levels to watch.
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FAQ
Why is USD/JPY falling below 154.000?
USD/JPY is under pressure as expectations for a BOJ rate hike strengthen the Japanese yen. Rising Japanese yields and carry trade unwinding are contributing to yen demand.
How does a BOJ rate hike affect USD/JPY?
A BOJ rate hike can support the yen by increasing Japanese interest rates and narrowing the yield gap between Japan and the US. This may create downside pressure on USD/JPY.
What US data could affect USD/JPY next?
The upcoming US CPI report is a big driver. Strong inflation could support the US dollar, while softer inflation may increase pressure on USD/JPY.
What levels should traders watch for USD/JPY?
Traders are watching 153.500 as near-term support and 154.000 as key resistance. A break beyond either level could indicate the next directional move.
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