USD/JPY Update: The Yen Recovers After the Fed Decision

USD/JPY has lost nearly 1% of its value over the last two trading sessions, allowing the Japanese yen to regain ground against the U.S. dollar. This short-term bearish movement is primarily driven by economic uncertainty in the United States and the continued hawkish outlook maintained by the Bank of Japan.

The Role of Central Banks

It has been nearly a day since the Federal Reserve decided once again to keep interest rates steady at 4.5%. However, shortly after the announcement, the board expressed concerns about inflation levels, which remain far from the 2% target. As a result, Powell maintained a neutral stance on future rate cuts, emphasizing that the Fed must assess the economic landscape alongside the new administration in the White House. Currently, the market assigns an 82% probability that the interest rate will remain in the 4.25%-4.5% range in the upcoming March decision.

March Interest Rate Probabilities - CME Group

Source: CMEGroup

On the other hand, in its latest decision, the Bank of Japan announced an interest rate hike from 0.25% to 0.5%, reaching its highest level since the 2008 financial crisis. The central bank indicated that this may not be the only rate increase of the year and that there is room for further hikes, given persistent inflationary pressures in Japan and the failure to meet the 2% inflation target in recent readings.

Given these contrasting policies, two distinct stances emerge among central banks. The Federal Reserve maintains a neutral position, pausing rate cuts in the short term without immediate plans to increase them. Meanwhile, the Bank of Japan remains one of the few globally adopting a hawkish monetary policy. As long as the U.S. maintains a neutral stance and Japan continues with its aggressive rate policy, the market may find the yen more attractive due to rising yields on its bonds, which could help sustain bearish pressure on USD/JPY.

Growing Uncertainty

The Fear & Greed Index from CNN currently stands at 46, still within the neutral zone but nearing "fear" territory. This suggests that confidence has gradually declined throughout 2025, potentially prompting investors to avoid riskier assets in the short term.

Fear & Greed - CNN

Source: CNN Business

In this scenario, the yen once again stands out as a key safe-haven asset globally. If the Fear & Greed Index continues to decline, demand for safe-haven assets like the yen could increase as capital outflows from riskier markets shift toward safer assets. This is also helping to maintain the bearish pressure of the USD/JPY in the short term.

USD/JPY Technical Forecast

Source: StoneX, Tradingview

Trend Break: The bearish movement that has been in place since early January has been strong enough to generate sustained oscillations below the short-term upward trendline. The break below the 155.229 support level, which coincided with the 50-period simple moving average, has maintained selling pressure and could develop into a more significant downward trend.
MACD: Both the signal line and the MACD line continue to show a strong downward slope, approaching the neutral 0 level. Additionally, the histogram has also exhibited a pronounced bearish shift, remaining below the neutral line. These factors indicate that recent movements have been predominantly bearish, and if the histogram continues to move further from the neutral level, a stronger selling bias for USD/JPY could be confirmed.

Key Levels:
157.927: A distant resistance level corresponding to the highest prices reached in recent months. Oscillations approaching this level could revive the short-term bullish trend.
155.229: A new resistance level where a neutral zone converges with the 50-period simple moving average barrier. Sustained oscillations above this level could weaken the current bearish bias and create a more neutral movement on the chart.
152.796: A key support level where the 100- and 200-period moving averages converge. Oscillations near this level could confirm selling pressure and trigger a more dominant bearish movement.

Written by Julian Pineda, CFA – Market Analyst

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