USD/JPY experiences a significant decline, reaching approximately 156.25 during the early Asian trading session on Friday. Japanese CPI inflation has surpassed the Bank of Japan’s target for the first time this year. Comments from Federal Reserve policymakers have moderated anticipations regarding a potential rate increase at the upcoming October policy meeting. The USD/JPY pair continues to experience selling pressure, approaching 156.25 in the early Asian session on Friday. The Japanese Yen strengthens against the US Dollar following Japan’s hot inflation report. The preliminary reading of the US S&P Global Purchasing Managers Index is scheduled for release later on Friday. Data released by the Statistics Bureau of Japan on Friday indicated that the National Consumer Price Index experienced a year-on-year increase of 2.1% in September, compared to a previous rate of 1.9%. Meanwhile, the core CPI, which excludes volatile fresh food but includes fuel costs, registered a year-over-year increase of 2.1% in September. This figure followed a 1.8% rise in August (revised from 1.7%) and aligned with market expectations.
The CPI that excludes fresh food and energy, a metric closely monitored by the BOJ for its reflection of demand-driven price pressures, rose by 2.4% in September compared to the previous year, following a revised increase of 2.0% in August (up from 1.9%). This report indicated that Japanese September inflation surpassed the Bank of Japan target level for the first time in nine months, bolstering the argument for a near-term interest rate increase and strengthening the JPY. On the US front, comments from Federal Reserve officials indicated minimal urgency for additional policy tightening. Last week, Fed Chair Kevin Warsh conveyed a sense of optimism regarding the robustness of the US economy, yet he refrained from providing any signals about the necessity or timing of future interest rate hikes. Market participants are assessing a 92.8% probability that the Federal Reserve will maintain its current interest rate during the policy meeting scheduled for October 27-28, as indicated by the CME FedWatch Tool.
Analysts at Standard Chartered expect the Bank of Japan to stay put at its late-October meeting, saying, “We expect the Bank of Japan to keep the policy rate unchanged at 1.25% at its 29-30 October meeting, following September’s 25bps hike.” However, they add that “we expect policy makers to maintain a clearly hawkish tone,” with the market discussion now evolving: “As a result, the debate is increasingly shifting from whether the BoJ will hike again to when the next hike will occur.” Standard Chartered notes that “while December is now a live meeting, January 2027 remains our base case for the next hike,” underscoring expectations for a very gradual tightening path. At the same time, the bank argues that “the BoJ has an incentive to continue policy normalisation to support yield differentials and reduce the risk of renewed JPY weakness, particularly if the Fed resumes tightening or maintains a restrictive policy stance for longer than expected.”
Fed Chair Warsh’s speech received a score of 5.6 out of 10 on the FXS Speechtracker, indicating a modest decline compared to the historical average of 6.1 out of 10. This score reflects a cautious tone, even in light of optimistic remarks regarding structural growth and a surge in investment. The remark about being “over-scarred from the global financial crisis” underscores a lingering risk aversion that tempers optimism about output, employment, and inflation, while repeated refusals to prejudge the October and December meetings keep traders focused on data-dependent outcomes rather than explicit guidance. Warsh’s focus on AI as a near-term demand-side influence and the associated financial stability risks indicates a need for medium-term policy vigilance, yet it provides little additional guidance for immediate rate expectations. The FXS Fed Sentiment Index remained stable, registering no change at a notably high level of 127.51, which aligns with a persistently hawkish stance, even though the speech reflected a marginally softer score on the FXS Speechtracker. The flat index reading indicates that the market perceived the remarks as largely consistent with prevailing expectations for a restrictive policy, lacking any new dovish signals potent enough to alter the overarching hawkish stance.
In the daily chart, USD/JPY continues its corrective phase following a recent peak above 160. The pair currently resides beneath a substantial resistance zone, with the price positioned below the 20-day Bollinger lower band, the middle band, and the upper band, while the 100-day simple moving average constrains the overarching trend. The Relative Strength Index at 38.20 has fallen beneath the neutral 50 line, indicating that downward pressure continues to prevail, even though the pair has already corrected a portion of its overbought status. On the topside, initial resistance aligns with the 20-day Bollinger lower band at 156.75, followed by the Bollinger midline at 157.85, which marks the next recovery hurdle. Higher up, the upper Bollinger band at 159.00 and the 100-day SMA at 159.35 create a broader supply cluster that must be reclaimed to alleviate the prevailing bearish sentiment. With no nearby technical support levels in the dataset below 156.38, any further decline would result in the pair seeking new demand zones on the chart.
