The U.S. dollar is seeing modest gains against the Japanese yen to start the week, but momentum remains muted below the 148.00 resistance level, well off Friday’s peak near 151.00. The restrained recovery comes amid a growing consensus that the Federal Reserve may begin cutting interest rates, a shift that is weighing heavily on the greenback.
On the technical front, Friday’s decline marked a break below the 38.2% Fibonacci retracement of the July rally—an important bearish signal for short-term traders. Support is now forming around the 146.75–146.80 zone, aligning with the 50% retracement level.
Should this support fail, downside targets include:
- 146.00 psychological support
- 145.85, the 61.8% Fibonacci level
However, a sustained move above 148.00 could trigger a technical rally toward 148.60, then on to 149.00, aligning with the 23.6% retracement and possibly even the 200-day SMA at 149.50. A push beyond this level could pave the way to retesting the 150.00 psychological threshold.
Rate Cut Bets Weigh on Dollar Strength
Investor sentiment shifted sharply after last week’s disappointing U.S. employment report. July’s job growth came in lower than expected, while May and June’s figures were revised downward, undermining narratives of a strong labor market. The soft data prompted markets to reevaluate the Fed’s monetary stance.
According to the CME FedWatch Tool:
- 80% probability of a 25 bps rate cut in September
- 63 bps total rate cuts priced in for H2 2025
- Prior to the jobs data, the probability stood below 40%
Adding to the dovish outlook, the resignation of Fed Governor Adriana Kugler, considered a hawkish voice, may open the door for a more market-friendly appointment by President Trump.
This combination of weaker fundamentals and potential policy shifts has limited the dollar’s ability to sustain gains despite supportive technical zones.
BoJ Tone Keeps Yen Soft Amid Global Jitters
In contrast, the Bank of Japan (BoJ) has taken a more gradual approach. Last week, policymakers reiterated their intent to tighten policy slowly but offered little clarity on when a rate hike may occur. The lack of urgency and comfort with the yen’s current level led to post-meeting JPY selling.
Looking ahead, today’s economic calendar is light, with only U.S. Factory Orders data due. Analysts expect a weak reading, adding to concerns that tariff effects are beginning to surface. Without a positive surprise, the release is unlikely to offer meaningful support for the dollar.
Summary:
The USD/JPY pair remains range-bound below key resistance as dovish Fed expectations cap upside potential. With technical support near 146.75 and investor focus on upcoming data and rate policy, a breakout may hinge on confirmation of economic softness or central bank shifts. For now, risk remains tilted to the downside unless bulls reclaim momentum above 148.00.
