Japanese Yen Forecast: USD/JPY Faces Volatility on BoJ-Fed Policy Split

Markets brace for what could be the most volatile week for USD/JPY this quarter. Traders face uncertainty as the Fed and the Bank of Japan’s interest rate decisions loom. This week, the pair slid from 153.257 on Monday, October 27, to 151.759 on Tuesday, October 28.

Japanese government threats of intervention triggered a sharp pullback. Traders will now briefly shift their focus away from US-China trade developments toward rising expectations of Fed rate cuts and a BoJ rate hike. Speculation about a BoJ rate hike has persisted despite Prime Minister Sanae Takaichi’s ultra-loose monetary policy stance. USD/JPY reclaimed the 153 handle following Takaichi’s appointment as Japan’s prime minister before retreating.

Consumer Confidence to Spotlight Consumption Outlook

While speculation about monetary policy divergence will influence price trends, traders should consider upcoming economic indicators.

Economists forecast the Japanese Consumer Confidence Index to rise from 35.3 in September to 35.6 in October. A higher reading could signal a pickup in consumer spending, potentially fueling demand-driven inflationary pressures. Furthermore, consumer spending may also boost the Japanese economy as private consumption accounts for about 55% of GDP.

These scenarios could support a more hawkish BoJ policy stance, raising appetite for the Japanese yen. August’s US-Japan trade deal, resulting in lower levies on Japanese shipments to the US, could boost consumer confidence. However, uncertainty about the election may have tainted sentiment, potentially limiting a marked jump in confidence.

Given that the Bank of Japan will announce its interest rate decision on Thursday, October 30, market reaction to the data could be relatively constrained.

Polls Signal BoJ Rate Hike Timing

While Takaichi favors easy policy, economists expect the BoJ to act independently. According to the Reuters poll conducted between October 14 and 20, two-thirds of economists stated the BoJ would not delay rate hikes despite Takaichi’s election victory. The poll also revealed:

• 60% of economists, 45 of 75, expect the BoJ to raise interest rates by 25 basis points to 0.75% in the fourth quarter.
• 96% of economists, 64 of 67, predict borrowing costs to increase to at least 0.75% by March 2026.
• 46% of the 35 economists polled favored a January rate hike, 31% a December hike, and just 14% an October adjustment.

With markets expecting the BoJ to hike rates and the Fed to cut rates, monetary policy divergence could narrow US-Japan interest rate differentials, favoring the Japanese yen.

Given these dynamics, a narrower rate differential may push USD/JPY below 150 and the 50-day EMA. A drop below the 50-day EMA would bring the 200-day EMA and the October low of 146.585 into play. If breached, the September low of 145.481 would be the next key support level.

Fed Interest Rate Decision and Powell’s Press Conference

While economists speculate about the timing of a BoJ rate hike, the Fed will take center stage later on Wednesday, October 29.

Economists expect the Fed to cut interest rates by 25 basis points. Unless there is a surprise 50-basis-point cut, Fed Chair Powell will set the tone for markets. Support for a December rate cut to bolster the labor market and acknowledgement that inflation has peaked could send USD/JPY toward 150 and the 50-day EMA. If breached, the 200-day EMA would be the next key technical support level.

The US government shutdown could extend to day 29, leaving the Fed flying blind on crucial labor market data. Fed Chair Powell had already taken a more dovish stance before the shutdown as labor market data signaled weaker conditions.

Beyond Fed Chair Powell’s views on interest rates, there is also the potential winding down of Quantitative Tightening (QT).

On October 14, 2025, Fed Chair Powell gave his strongest signal on QT, stating:

“Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions.”

He also noted that there were early signs of tightening liquidity conditions.

Notably, winding down QT would also narrow the US-Japan rate differential, favoring the yen, potentially being compounded by a hawkish BoJ policy stance. This scenario could trigger a market event similar to the yen carry trade unwind on July 31, 2024.

USD/JPY Scenarios: Monetary Policy Divergence

• Bearish USD/JPY Scenario: hawkish BoJ rhetoric and dovish Fed rate cut could push USD/JPY toward 150 and the 50-day EMA.
• Bullish USD/JPY Scenario: dovish BoJ chatter and a hawkish Fed rate cut could send USD/JPY toward 155.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Key Market Drivers to Watch Today:

• Japanese economic data.
• BoJ commentary and Japanese government remarks on yen strength.
• US-China trade headlines.
• Developments on Capitol Hill.
• The Fed interest rate decision and Fed Chair Powell’s press conference.

For more in-depth analysis, review today’s USD/JPY trading setups in our latest reports and consult the economic calendar.