The USDJPY pair remains in a range for over a month despite numerous events and data releases. The US dollar has weakened, in part due to a soft Non-Farm Payroll report, feeding expectations of three rate cuts by year-end, amounting to 70 basis points. A 10% chance of a 50 basis points cut in September is considered if a soft CPI report is presented on Thursday. The yen experienced a decline following the resignation of Japanese PM Ishiba, but soon recovered to previous levels.

On the US dollar side, bearish positioning could be overstretched, hinting at a potential peak in dovish pricing. While strong economic activity may halt future rate cuts beyond 2026 and support the dollar, weak US data may lower it further. The yen’s rally has been linked to expectations around US Federal Reserve policies. Further yen appreciation could result from weak US data pushing up dovish forecasts for the Fed or higher inflation rates in Japan warranting more rate hikes.

Technical Analysis

Technically, USDJPY faced rejection at the 148.50 resistance zone on the daily chart. Traders targeting the 145.50 trendline may anticipate a rally into the 151.00 handle. On shorter timeframes, such as the 4-hour and 1-hour charts, the pair continues in a range, with traders buying at support and selling at resistance. Upcoming US data releases include the PPI report, CPI report, Jobless Claims figures, and the University of Michigan Consumer Sentiment report.

We’ve seen the US dollar weaken after last Friday’s Non-Farm Payrolls report on September 5, 2025, came in soft at just 145,000 jobs, well below expectations. This has solidified market bets on the Federal Reserve, with fed funds futures now pricing in approximately 70 basis points of cuts before the year is out. The market is effectively preparing for three 25 basis point cuts from the Fed in its remaining meetings this year.

All eyes are now on the US CPI inflation data this Thursday, with consensus expecting a 0.2% month-over-month increase in the core reading. A softer number below this forecast would likely increase the odds of a larger 50 basis point cut in September and could be the catalyst to push USD/JPY below its current range. Derivative traders might consider buying cheap, out-of-the-money puts on USD/JPY to position for this potential breakdown.

Inflation and Market Outlook

On the other side of the trade, the yen’s recent strength is mostly a reflection of the dollar’s weakness, not its own fundamental power. Japan’s latest core inflation reading for August 2025 was 2.6%, which, while above the Bank of Japan’s target, has not been enough to force a more aggressive policy stance. For the yen to strengthen on its own accord, we would need to see a series of inflation prints well above 3% to shift expectations.

Technically, we remain caught between the major resistance at 148.50 and the key trendline support around 145.50. Given the high uncertainty before the inflation data, strategies like a long strangle, buying both a call option above 148.50 and a put option below 145.50, could be used to profit from a breakout in either direction. This allows traders to position for a volatility event without betting on the specific direction.

We must also consider the possibility that market expectations for Fed cuts are overdone, as bearish dollar positioning appears stretched. If this week’s inflation and PPI data come in surprisingly hot, we could see a rapid reversal of these dovish bets. In that scenario, traders holding call options would benefit as the pair breaks above 148.50, potentially targeting the 151.00 handle, a level we remember seeing back in late 2023.

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