USD/JPY slid early in the week, falling more than 1% in Asian and early European trading on Monday, as it sought to extend last week’s sharp drop after a pause on Friday. The yen has been recovering from multi-decade lows following Japan’s first intervention in late July, while a hawkish shift in Bank of Japan rhetoric has added momentum and pointed markets towards a possible rate rise at the September meeting. Most economists expect a 25 basis point move, though a 50 basis point increase is also being priced as a risk, alongside positioning that favours further yen-long exposure.
The pair broke below the 155.20 support area, a level linked to the 3 August and 3–4 September lows, generating a bearish continuation signal tied to a failure swing on the daily chart. A further drop through 154.78, the 38.2% Fibonacci retracement of the 139.88–163.98 uptrend, would validate the move and open 152.00, the 25 January trough and 50% retracement, and 150.92, the 27 July 2025 spike high. Daily indicators remain bearish, including a 10/200-day moving average death cross, although oversold conditions and the 154.26 area, the top of the rising daily cloud, may slow declines. Resistance is seen at 154.78 and 155.20, with rallies ideally capped beneath 156.50–75; additional resistance sits at 159.17, 159.35, 159.59 and 160.00, while support is flagged at 154.05, 153.06, 152.26 and 151.93.
Trend Reversal and Market Sentiment
We are seeing a major trend reversal in the USD/JPY pair as it breaks below the key support level of 155.20. This technical breakdown opens the door for further declines toward the 152.00 mark and potentially 150.92 in the coming weeks. Derivative traders should prepare for sustained Yen strength as market sentiment rapidly shifts to favor Yen buyers.
Recent market statistics back up this bearish view, with CFTC data showing that speculative traders have pushed net-long Yen positions to multi-year highs. Furthermore, Japan’s core inflation has remained consistently above the 2% target, keeping pressure on the Bank of Japan to deliver a 25 to 50 basis point rate hike this month. We expect this narrowing interest rate gap with the U.S. to drive heavy selling pressure on the U.S. dollar.
Trading Strategies and Risk Management
For options traders, we suggest buying put options targeting the 152.00 level to exploit the potential spike in volatility ahead of the upcoming policy meeting. If you are trading futures or CFDs, look to sell any short-term rallies capped under the 156.50 resistance zone. These strategies will help limit risk while positioning for the next leg down in this bearish cycle.
