USDJPY – Waiting for the Bank of Japan!Given the magnitude and importance of the central bank events taking place this week, FX traders could be forgiven for struggling to sleep at night as they process the possible permutations of what key interest rate decisions from the Federal Reserve (Fed) and the Bank of Japan (BoJ), alongside any comments provided by Fed Chair Kevin Warsh and BoJ Governor Kazuo Ueda on inflation, rising bond yields and future rate moves could mean for the direction of USDJPY into the Friday close.
After a sharp sell off from 160 at the end of August down to a low of 152.89 (September 8th), perhaps unsurprisingly, USDJPY prices squeezed back above 155.00 again yesterday as traders squared weak shorts ahead of last night’s Fed decision. Then on hearing the US central bank had decided to hike interest rates 25 bps (0.25%) for the first time in 2026 and indicated they could be prepared to move again before the end of the year, USDJPY prices squeezed all the way up to a high of 156.42 before drifting back to trade at current levels around 155.95 (0630 BST).
Now, looking forward, traders have that nervous 24 hour wait to hear the outcome of tomorrow’s BoJ rate meeting (0400 BST). Expectations are for the BoJ to raise rates again, but after last night’s update from the Fed, traders may be looking for something extra from Governor Ueda to reignite the recent USDJPY downtrend or risk a nasty squeeze back up to test higher resistance levels.
Technical Update: USDJPY – Normal Pullback or More Sustained Rally?
In our USDJPY update on September 7th, we highlighted the formation of a potential Head and Shoulders top, with closing breaks below the neckline support possibly leading to further price weakness (see our commentary timeline for full details).
As can be seen in the daily chart above, subsequent price action has seen the neckline support broken to the downside on a closing basis, and while not a guarantee of extended weakness, this move suggests the potential for a negative shift in USDJPY sentiment. However, as also shown in the chart, price action this week has seen a recovery develop, bringing USDJPY back above the neckline of the reversal.
It’s common in technical analysis to see a rally or pullback after completion of a Head and Shoulders top, before fresh declines materialise. However, after this week’s rally, traders may be wondering if last night’s Fed announcement and subsequent price strength, could be ending the threat of the reversal pattern, or if it’s just a limited rally within a developing downtrend, before fresh price weakness is seen again.
Ahead of tomorrow’s Bank of Japan rate decision, reassessing the technical backdrop and identifying some key support and resistance levels to monitor may prove useful in establishing the next directional themes for USDJPY.
If this is a Normal Limited Pullback to the Reversal:
If the latest price strength is to prove a normal pullback to the Head and Shoulders top before fresh price declines are seen, USDJPY upside may be limited, shifting focus to lower support levels.
The first key support to focus on may be 154.66 (half of the latest recovery). Closing breaks below this level could suggest the latest price strength is a limited move higher, before fresh USDJPY price weakness and tests of longer‑term support levels are seen again.
As the weekly chart above indicates, closes below 154.66 could lead to further downside momentum, opening potential to test 152.89 (September monthly low), then 151.96 (50% retracement of April 2025 to July 2026 strength), and possibly even 149.12 (61.8% retracement).
If a More Extended Price Recovery is to Develop:
It is equally possible following last night’s Fed announcement that a more extended USDJPY recovery could materialise. If this is the case, current price strength could challenge the first potential resistance level at 156.62 (50% retracement of September weakness).
Closing breaks above 156.62 could question the validity of the Head and Shoulders reversal pattern and indicate risks of moves toward higher resistance levels. This could open the way for tests of 157.50 (61.8% retracement) and, if closing breaks above this level are seen, on toward 160.39 (September 2nd high).
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