Market Analysis Summary: USD/JPY and the Impact of Fed and BoJ Policies

Date: 17 September 2026

Author: Kelvin Wong

Key Takeaways

• Hawkish Fed Supports USD/JPY: The Federal Reserve's recent rate hike and indications of further tightening enhance the US dollar's yield advantage over the yen.
• BoJ Guidance is Crucial: A rate hike to 1.25% is anticipated; however, further signals of tightening from the BoJ are necessary to maintain yen strength.
• Japan CPI Composition Matters: Stronger services and underlying inflation could lead to more BoJ hikes, while weaker data may weaken the yen.
• Key Resistance Levels: The USD/JPY is testing resistance at 156.13/50; a break below 155.45 could lead to further declines.

Market Context

The USD/JPY pair reached an intraday high of 156.41 following the Fed's 25-basis-point rate hike, marking its first increase since 2023. The Fed's projections indicate that 12 out of 18 policymakers expect another rate hike by the end of 2026, with policy rates expected to remain stable through 2027. Fed Chair Kevin Warsh emphasized the persistent inflationary pressures, leading to a significant rise in the US Dollar Index.

Japan's Inflation Data

Japan's inflation data for August is set to be released shortly before the BoJ's monetary policy decision. The core-core CPI is expected to remain at 1.9% year-on-year. The focus will be on whether inflation is becoming sustainably domestic rather than driven by external factors like oil prices. Key indicators to watch include:

• Services inflation and wage growth impact on consumer prices.
• Measures excluding fresh food and energy.
• Broadening price increases beyond imported goods.
• Inflation expectations relative to the BoJ's 2% target.

BoJ's Expected Rate Hike

The BoJ is expected to raise its policy rate to 1.25%, the highest in 31 years. However, this increase is largely priced in, and the market will be more focused on Governor Ueda's press conference for future guidance. A hawkish tone could signal further rate increases, while a dovish stance may allow the USD/JPY to extend its gains.

Technical Analysis of USD/JPY

The recent rally in USD/JPY has stalled at a critical resistance zone of 155.03/156.73. A bearish divergence in the hourly RSI suggests a potential reversal. Key levels to monitor include:

• Resistance at 156.13/50.
• Support at 155.45, with potential declines to 154.47, 153.70, and 152.65/55 if broken.
• A close above 156.50 could shift focus to 157.20.

Conclusion

The upcoming decisions and statements from both the Fed and BoJ will be pivotal in shaping the USD/JPY trajectory. Market participants should remain vigilant to the evolving economic indicators and central bank communications.