Japanese Yen Forecast: USD/JPY Gains as Senate Vote Boosts Risk

BoJ policy rift and Capitol Hill drama keep yen traders on edge. Bank of Japan monetary policy uncertainty and the US Senate vote on opening the government pushed USD/JPY to a nine-month high of 154.494 on Tuesday, November 11.

The BoJ’s Summary of Opinions reflected division amongst policymakers. Policymakers expressed concerns about the effect of US tariffs on demand and a softer inflation outlook.

Meanwhile, worries about a weaker yen leading to higher import prices and dampening households’ purchasing power capped USD/JPY gains. In recent weeks, the Japanese government threatened yen intervention at 154 levels, raising the risk of a sharp reversal.

On Wednesday, November 12, Japanese economic indicators signaled resilience despite lingering concerns over tariffs.

Reuters Tankan Index Hits Four-Year High

The Reuters Tankan Index jumped from 8 in October to 17 in November, well above an expected 10. The Index climbed to its highest level since January 2022.

Economists view the monthly survey of manufacturers and non-manufacturers as a leading indicator of the BoJ’s quarterly Tankan surveys. November’s rise indicated a significant increase in private sector firms stating that business conditions were good rather than poor.

Crucially, a marked improvement in sentiment across the manufacturing sector sent the Index higher, potentially easing the BoJ’s concerns about US tariffs squeezing margins. The electronics and auto sectors were two highlights.

• The auto and transport machinery sector Index soared from 9 to 27 on resilient orders and the weaker yen.
• The electronics sector Index surged from 5 to 25.

USD/JPY dropped from 154.089 to a post-data release low of 154.046 before climbing to a high of 154.162. Market reaction to the data underscored ongoing uncertainty about the BoJ raising interest rates in December, despite the upbeat data.

This mix of economic resilience and policy divergence has traders questioning whether intervention looms before year-end.

Notably, the pair soared 4.2% in October. Uncertainty surrounding the BoJ, fueled by Prime Minister Sanae Takaichi’s election victory and her commitment to an ultra-loose monetary policy, weighed on sentiment. However, USD/JPY has gained just 0.06% in November, with intervention threats limiting the upside.

Capitol Hill Votes and Fed Outlook

While Japanese data drew market attention early in the Wednesday session, Capitol Hill will take center stage later. The Senate approved a funding package to reopen the government on Tuesday, November 11, passing the bill to the House.

Markets expected a House vote to approve the Senate’s measure, potentially reopening the government this week. However, USD/JPY is exposed to the risk of the House failing to approve the bill, given that it differs from the bill the House had originally passed to the Senate.

Further delays to the US government returning to office could trigger a US dollar sell-off, sending USD/JPY toward 153. On the other hand, the pair could rise toward 155 if the House approves the bill. However, a move toward 155 may draw the Japanese government’s attention and potentially trigger more yen intervention threats, suggesting a choppy session.

While Capitol Hill will take center stage, traders should monitor FOMC members’ speeches. Views on inflation, labor market conditions, and potential economic fallout from the shutdown will influence bets on a December Fed rate cut.

According to the CME FedWatch Tool, the chances of a Fed rate cut in December were finely balanced, rising from 62.4% on November 10 to 67.9% on November 11.

Despite near-term strength, the broader outlook remains bearish as narrowing rate differentials may favor the yen. The Fed remains on a dovish rate path, while the BoJ continues to keep a rate hike on the table, supporting a narrowing in rate differentials in favor of the yen.

USD/JPY Scenarios: Diverging Monetary Policies

• Bearish USD/JPY Scenario: Hawkish BoJ chatter, intervention warnings, failure by the House to approve the funding bill, and dovish Fed rhetoric could drag USD/JPY toward 153.
• Bullish USD/JPY Scenario: Dovish BoJ signals, House passes funding bill, and hawkish Fed rhetoric could send USD/JPY toward 155.

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

Key Market Drivers to Watch Today:

• Bank of Japan commentary.
• Intervention threats.
• The House vote.
• Fed speakers.

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