USD/JPY forecast: CPI split, 94.2% Fed cut odds keep price range-bound [Video]

Previous forecast recap (webinar)

In our last webinar, we highlighted 148.00–148.50 as the key rejection zone unless U.S. CPI delivered a strong dovish surprise. We noted that a failure at this level could open the path toward 146.50, targeting previous demand.

CPI results: Mixed message

On August 12, CPI data brought a split outcome:

• Headline CPI YoY: 2.7% (vs 2.8% forecast) – Dovish.
• Core CPI YoY: 3.1% (vs 3.0% forecast) – Hawkish.

The soft headline reinforced easing expectations, but the hotter core print kept the Fed from being fully locked into aggressive cuts, creating two-way volatility in USD/JPY.

Post-release price action

The pair rejected the 148.50 ceiling, confirming our pre-CPI bias. Price is now consolidating in the 148.50–147.50 range, awaiting a breakout trigger from further U.S. data or Fed commentary.

Rate cut probability – September FOMC

According to the CME FedWatch Tool following the CPI release:

• 94.2% probability of a 25 bps rate cut (target range 4.00–4.25%).
• 5.8% probability of no change.
• 0% probability of a hike.

This strong consensus for easing keeps USD/JPY supported in the short term, but with the risk of dollar weakness if future data aligns with the softer headline CPI trend.

Technical outlook – USD/JPY post-CPI structure

Following the CPI release, USD/JPY reacted with a sharp rejection from the H4 Fair Value Gap, aligning with the supply zone we outlined in the pre-event forecast.

• Pre-CPI Build-Up: The pair climbed steadily into the bearish fair value gap, showing controlled bullish momentum ahead of the release.
• Immediate Reaction: CPI data triggered a swift bearish impulse, driving price back lower from the H4 Fair Value Gap. This confirmed and aligned with the dovish or soft print of the CPI release, signaling, weakness on the dollar.
• Post-CPI Consolidation: Price is now ranging just below the FVG ceiling, holding around 148.00–148.50, signaling indecision as the market weighs mixed inflation signals against high Fed cut expectations.

Bullish scenario – Range + FVG breakout

Following the CPI release, USD/JPY has been consolidating within the H4 Fair Value Gap after an initial downside reaction. The current structure suggests the potential for buyers to reassert control if price action follows through on a clean breakout.

Key bullish triggers:

1. H4 FVG Reclaim – A decisive 4H close above 148.20 would confirm that buyers have gained traction, signaling renewed bullish intent.
2. Pullback Retest Hold – After breaking above the FVG, a retest of 148.00-148.20 holding as new support would strengthen upside momentum.
3. Continuation Pattern – Sustained higher lows following the retest would pave the way for a measured move higher.

Targets:

• 1st Target: 148.80–149.00 – Psychological and short-term liquidity zone.
• 2nd Target: 149.50 – Next liquidity pool before 150.00 round number.

Invalidation:

• A rejection back below 148.50 and a close under 147.50 would weaken the bullish setup and put the bearish scenario back in play.

This bullish pathway aligns with the macro backdrop of a 94.2% Fed rate cut probability, which generally supports carry trade flows into USD/JPY. If risk sentiment remains steady and Japanese yields stay suppressed, buyers could leverage the current consolidation as a launchpad for a push toward the 149 handle.

Bearish scenario – FVG resistance holds

Price remains capped within the H4 Fair Value Gap, showing signs of weakness. Sellers could regain control if price action respects this zone as a ceiling.

Key bearish triggers:

1. Rejection at FVG – A failure to break and hold above 148.50, with strong rejection wicks or bearish engulfing candles, signals low traction in favor of the dollar.
2. Break Below 147.50 – Losing this intraday support would confirm bearish momentum and invite further downside pressure.
3. Continuation After Pullback – A retest of the bottom FVG (148.00) turning into resistance would reinforce short setups.

Targets:

• 1st Target: 147.00 – Psych Level
• 2nd Target: 146.60 – Deeper liquidity pool from previous accumulation.

Invalidation:

• A clean 4H close above 148.20-148.50 would nullify this bearish bias and open the door for bullish continuation toward 149.00.

The rejection from the H4 Fair Value Gap aligns with the idea of distribution at premium pricing, particularly as the market digests mixed CPI signals. While a 94.2% Fed cut probability leans dovish for the USD in theory, if the yen strengthens on any BoJ commentary or risk-off sentiment, sellers could drive the pair into a deeper retracement phase.