The USD/JPY exchange rate pulled back slightly on Thursday as the market reacted the Federal Reserve and Bank of Japan (BoJ) interest rate decisions. It was trading at 148.75, a few points below this week’s high of 149.52.
Fed and BoJ interest rate decisions
The USD/JPY pair moved sideways after the Fed left interest rates unchanged between 4.25% and 4.50%, defying Donald Trump, who has pushed for more cuts this year.
The only difference in this meeting was that there were dissents among Trump appointees like Christoper Waller and Michele Bowman who voted to cut interest rates.
Officials maintained that the next cut will depend on incoming data, especially on inflation. Some of the members, including Powell, believe that Trump’s cuts will lead to a higher inflation, as company adjust prices. In a note, an eToro analyst said:
“To get that rate cut, the Fed will need to gain confidence that either inflation increases will be one-off and muted, or that inflation will continue to trend lower in the months and quarters ahead.”
The Fed decision came after the US published strong economic data, justifying the pause. A report on Tuesday showed that the US consumer confidence jumped this month.
More data released on Tuesday showed that the private sector added over 104k jobs in July after shedding 23,000 a month earlier. A report by the Bureau of Economic Analysis showed that the GDP expanded by 3% in Q2.
The next key catalyst for the USD/JPY exchange rate will be the upcoming US personal consumption expenditure (PCE) data on Thursday and nonfarm payrolls (NFP) on Friday.
The USD/JPY exchange rate also reacted to the latest BoJ interest rate decision. Like the Fed, the bank left interest rates unchanged as was widely expected. Officials then raised the inflation outlook, pointing to the recently signed US-Japan trade deal.
It now expects that the country’s inflation will be 2.7%, up from the current 2.2%. As a result, analysts believe the bank may opt to deliver another interest rate hike later this year or in early 2026.
USD/JPY technical analysis
USDJPY chart by TradingView
The daily chart shows that the USD to JPY exchange rate pulled back from the year-to-date high of 158.88 in January this year to the current 148.85.
It has moved sideways in an ascending channel in the past few months, and now remains at the upper side. This channel is part of the formation of the handle section of the inverse cup-and-handle pattern, a popular bearish continuation sign.
Therefore, the pair will likely resume the downtrend as sellers target the lower side of the channel at 143.50, which is about 3.6% below the current level.
On the other hand, a move above the upper boundary of this channel will indicate further gains, potentially reaching the psychological level at 150.
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