USD/JPY Price Forecast: Tests breakout region around 159.20 at the start of BoJ-Fed policy week

USD/JPY falls back to near 159.20 as the US Dollar turns upside down.
The US called off peace talks with Iran, which were expected over the weekend.
The BoJ and the Fed are expected to leave interest rates unchanged this week.

Sagar Dua FXStreet

The USD/JPY pair gives back its opening gains and trades marginally lower around 159.20 during the late Asian trading session on Monday. The pair surrenders early gains as the US Dollar (USD) turns upside down despite the United States (US)-Iran diplomacy remaining at a stalemate.

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is marginally lower to near 98.45.

The US-Iran peace talks, which were expected to resume in Islamabad over the weekend, were called off as Washington canceled the US envoys' visit, citing that it would be a waste of time as the counteroffer by Iran, received through Pakistan, is not good enough, Axios reported.

US President Donald Trump also confirmed that Iran has offered a new proposal, which is better than what it was going to present in peace talks, and “is much better, but still not good enough”.

On domestic fronts, investors await monetary policy announcements by both the Bank of Japan (BoJ) and the Federal Reserve (Fed) on Tuesday and Wednesday, respectively. Both central banks are expected to hold interest rates steady and warn of upside inflation risks and downside economic risks in the wake of higher energy prices.

USD/JPY technical analysis

USD/JPY ticks down to near 159.20 in the Asian trade; however, the pair holds a constructive bullish bias as spot remains above the 20-day exponential moving average (EMA) at 159.14. The pair tests the breakout of the Descending Triangle formation on a daily timeframe near the downward-sloping border at around 159.20, which usually results in a fresh rally on the upside.

The Relative Strength Index (RSI) near 52 hints at neutral-to-slightly positive momentum rather than an overstretched rally.

On the downside, the reclaimed downward-sloping border around 159.17, aligning closely with the 20-day EMA at 159.14 is the immediate support; a break below that level would expose the horizontal support border of the above-mentioned chart pattern near 157.60.

Looking up, the pair could advance towards 160.00 if it manages to hold the above-mentioned downward-sloping border. A break above 160.00 would open the scope of further upside towards the March 30 high at 160.46.

(The technical analysis of this story was written with the help of an AI tool.)

Central banks FAQs

What does a central bank do?

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

What does a central bank do when inflation undershoots or overshoots its projected target?

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

Who decides on monetary policy and interest rates?

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Is there a president or head of a central bank?

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

AUD/USD flatlines near 0.6965 as less hawkish RBA counters USD weakness

AUD/USD holds steady above a two-week low, trading near 0.6965 in the Asian session on Wednesday as early midterm election results heighten political uncertainty and weigh heavily on the US Dollar. Moreover, reviving safe-haven demand triggers a fresh leg down in US bond yields, offsetting Fed hike bets and exerting additional pressure on the buck. However, a less hawkish RBA caps the Aussie.

USD/JPY declines below 158.00 as USD weakens on midterm election results

USD/JPY comes under heavy selling pressure on Wednesday, dropping below 158.00 during the Asian session as the US Dollar slumps to a one-month low amid heightened political uncertainty after early US midterm vote counts. Moreover, the prospect of gridlock in Washington drives safe-haven flows, triggering a fresh leg down in US bond yields and further weighing on the buck.

Gold continues scaling new weekly highs; eyes $4,050 as US sticks to elections-led losses

Gold builds on its strong intraday move up, hitting a series of new weekly tops, and climbing back close to the $4,050 level during the first half of the European session amid a broadly weaker US Dollar. Democrats’ wins in the House and Senate raise the prospect of gridlock in Washington. Moreover, heightened political uncertainty drove investors to safe-haven assets, exerting some downward pressure on US bond yields. This is seen weighing on the Greenback and supporting the precious metal.

Crypto Today: Bitcoin, Ethereum, XRP extend advance as US Dollar slides on Democrats' US midterm victory

Bitcoin trades above $78,000 on Wednesday as risk-on sentiment improves in the broader cryptocurrency market. Ethereum mirrors BTC’s recovery outlook, hovering above $2,300. Ripple similarly exchanges hands above $1.28, marking two consecutive days of gains.

ADP Employment Report expected to show slower job growth in October

The Automatic Data Processing Research Institute is due to release October’s private-sector employment report on Wednesday. The market consensus anticipates a moderate slowdown in job creation, with the ADP Employment Change expected to show 69K new private jobs in October, down from 90K in September.

The 2% inflation target came from a throwaway remark. It now moves trillions

The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.