USD/JPY: Downside risks mount as shutdown fears weigh on Dollar
The U.S. dollar has been on the back foot in recent sessions, hit by the twin pressures of a looming U.S. government shutdown and sliding oil prices. The yen has emerged as the top performer, with traders increasingly eyeing lower USD/JPY as the favoured trade during periods of heightened political and economic uncertainty.
History provides a guide here: during the 2018-19 shutdown, USD/JPY shed about 1.5%. Today, the pair is trading roughly 1% above its short-term fair value, suggesting there’s still room for a corrective move lower.
On the commodities side, softer oil prices continue to weigh on the dollar and commodity-linked currencies like CAD, while offering support to the yen and euro. Into year-end, downside risks in energy markets remain a theme our commodities team has consistently flagged.
Macro data will be another key driver this week. The U.S. labor market is in focus, with JOLTS openings (after a weak July print) and Conference Board consumer confidence on deck. Later in the week, payrolls data could provide fresh direction — if it’s not delayed by a shutdown. For now, markets are pricing around 42bp of cuts into year-end, still above the Fed’s median Dot Plot. That leaves the bar high for more hawkish repricing and lowers it for dovish bets, skewing risks toward a weaker dollar.
Technical view: Bearish tilt emerging
The USD/JPY chart tells a story of its own. Since April 2025, the pair has been trading inside a clear upward channel, repeatedly testing both support and resistance. However, recent price action shows the rally stalling near 152.00, with the pair rolling lower as Fed cut expectations re-emerge and U.S. yields soften.
The channel’s lower bound — now near 146.00 — has been tested multiple times. If this floor breaks, the technical picture turns decisively bearish. A move toward the 142.00 level in the near term looks increasingly plausible, particularly if shutdown headlines and weaker U.S. data drive risk-off flows into the yen.
Momentum indicators back this view, with RSI hovering around neutral but tilting lower, suggesting downside pressure is building.
Author
Zorrays Junaid
Alchemy Markets
Zorrays Junaid has extensive combined experience in the financial markets as a portfolio manager and trading coach. More recently, he is an Analyst with Alchemy Markets, and has contributed to DailyFX and Elliott Wave Forecast in the past.
