USD/JPY Bullish Trend Holds at H4 EMA20 as Fed Cuts, BoJ Stays Steady Amid Japan Stimulus & Trade Optimism - Analysis & Forecast

USD/JPY maintains a dominant bullish trend on the daily chart, currently experiencing a short-term pullback to critical H4 EMA20 support. This technical retracement aligns with market caution ahead of pivotal central bank decisions from both the US Federal Reserve and the Bank of Japan later this week. Fundamentally, the pair finds strong support from the diverging monetary policy paths of the Fed, which is expected to cut rates, and the BoJ, which is widely anticipated to hold steady. Furthermore, optimism surrounding a potential US-China trade deal and Japan's proposed fiscal stimulus package are undermining the safe-haven Japanese Yen, reinforcing the underlying bullish bias for USD/JPY. Traders are monitoring the 152.636 H4 EMA20 level for a potential bullish reversal, although extreme volatility is expected following the upcoming high-impact economic events.

Technical Analysis

Multi-Timeframe Market Structure

The USD/JPY pair demonstrates a robust bullish trend on the daily chart, with price closing at 153.067, significantly above the ascending EMA20 (151.393), EMA50 (149.931), and EMA200 (148.387). This structure indicates strong long-term momentum, which finds fundamental backing from the widening monetary policy divergence between the dovish Federal Reserve and the cautious Bank of Japan. The MACD is strongly positive at 0.938419, and RSI at 61.69 suggests healthy bullish sentiment without being excessively overbought. An ADX reading of 30.05 confirms a strong trending market, asserting the primary uptrend.

On the H4 timeframe, the bullish trend remains intact, with price trading above ascending EMAs. However, the current close at 152.901 is below the H4 SAR (153.197), signaling a potential short-term reversal or consolidation. The MACD is positive but shows signs of weakening, while RSI is at a neutral 54.94. ADX at 23.89 suggests a developing but less aggressive trend compared to the daily timeframe. Price is currently finding crucial support near the H4 EMA20 at 152.636. This pullback is consistent with pre-event market consolidation before major central bank announcements.

The immediate trading bias is bearish on short-term timeframes due to the ongoing pullback. The H1 chart shows price trading below both EMA20 (152.874) and EMA50 (152.788), with MACD at -0.020117 and RSI at 42.71, indicating negative momentum. The M30 timeframe reinforces this, with price below EMAs, MACD at -0.054566, and RSI at 36.64. M30 Stochastic is deeply oversold at 8.49, suggesting the current bearish leg might be stretched and a bounce is possible. Key intraday resistance is found at the H1 EMA20 around 152.874, while the H4 EMA20 at 152.636 provides immediate support. Traders should seek M30 price action confirmation for any directional moves, particularly given the oversold conditions and upcoming event risk.

Critical Price Levels & Momentum Assessment

Resistance:

• 153.197 (H4 Parabolic SAR, immediate overhead resistance) - A break above this level would signal a resumption of the H4 bullish momentum, supported by sustained USD strength if the Fed's dovish stance is confirmed.
• 153.032 (H1 Parabolic SAR, psychological resistance) - Overcoming this level would indicate short-term bullish control, potentially on positive US economic data or increased risk appetite.
• 152.874 (H1 EMA20, immediate intraday resistance) - A decisive move above this level is necessary to alleviate immediate bearish pressure and suggests a potential shift towards higher levels, especially if USD finds renewed buying interest.

Support:

• 152.636 (H4 EMA20, crucial short-term support) - This is a critical level where the current pullback is expected to find buyers, particularly if the fundamental policy divergence remains intact. A strong hold here reinforces the primary bullish trend.
• 152.075 (H4 EMA50, medium-term structural support) - A break below the H4 EMA20 would bring this level into focus, potentially if the BoJ unexpectedly signals a more hawkish stance or if US data disappoints significantly.
• 151.393 (D1 EMA20, strong primary trend support) - This is a major structural support level aligned with the long-term bullish trend. A sustained break below this level, possibly triggered by a significant shift in central bank policy or risk sentiment, would invalidate the broader bullish outlook.

Fundamental Market Drivers

Central Bank Policy & Economic Outlook

The primary fundamental driver for USD/JPY is the stark divergence in monetary policy expectations between the US Federal Reserve and the Bank of Japan. The Federal Reserve is widely expected to cut interest rates by 25 basis points at its meeting ending tomorrow, bringing the Federal Funds Rate target range down to 3.75% to 4.00%. This would mark the second rate reduction of the year, with most economists anticipating additional cuts later in 2025 and into 2026. This dovish stance by the Fed, reinforced by softer-than-expected Consumer Price Index (CPI) reports and delayed employment data, generally weighs on the US Dollar. However, the impact on USD/JPY is mitigated by the even more accommodative outlook for the Japanese Yen.

On the Japanese side, the Bank of Japan is broadly expected to maintain its interest rate steady at 0.50% at its upcoming policy meeting on October 30. While the BoJ has gradually unwound its ultra-loose policy, markets assign only an approximately 11% probability of a 25-basis-point rate hike this week. This cautious approach by the BoJ is influenced by several factors, including the need to assess current economic conditions and the potential impact of Prime Minister Sanae Takaichi’s proposed fiscal stimulus package. Reports suggest Takaichi may unveil a major stimulus package, potentially exceeding last year’s ¥13.9 trillion program. This expansionary spending is viewed by markets as reducing the urgency for the BoJ to tighten policy further in the near term, thereby weighing on the Japanese Yen. Governor Kazuo Ueda’s comments following the meeting will be crucial for insights into the BoJ's forward guidance and the conditions for any future policy adjustments. The sustained policy divergence, with the Fed cutting rates and the BoJ holding steady amid fiscal expansion, provides a strong fundamental tailwind for the USD/JPY pair.

Market Sentiment & Risk Environment

Global market sentiment is another significant factor influencing USD/JPY, particularly the Japanese Yen's role as a safe-haven currency. Current market sentiment is boosted by optimism surrounding a potential US-China trade deal. US President Donald Trump and Chinese President Xi Jinping are scheduled to meet later this week to finalize the framework of a trade deal, following a preliminary agreement that would prevent new tariffs. Positive developments in defusing trade tensions typically boost risk appetite, which in turn undermines demand for safe-haven assets like the Japanese Yen. This risk-on environment acts as a fundamental headwind for the JPY, supporting the USD/JPY's upward trajectory.

Furthermore, Japan’s domestic political and fiscal developments are contributing to Yen weakness. The expectation that Prime Minister Sanae Takaichi's administration will maintain expansionary spending policies and resist early monetary tightening creates a fundamental tailwind for USD/JPY. The proposed major stimulus package, aimed at easing inflationary pressures on households, is perceived as reducing the need for the BoJ to hike rates, thus keeping the Yen suppressed. This combination of global risk-on sentiment and Japan's domestic fiscal expansion aligns with the technical bullish bias for USD/JPY, suggesting that the path of least resistance remains to the upside.

Integrated Trading Execution

Primary Trading Scenario

• Bias: Bullish - The long-term bullish trend on the daily chart, supported by significant monetary policy divergence between the Fed (cutting rates) and the BoJ (holding steady), combined with risk-on sentiment from potential US-China trade deals and Japan's fiscal stimulus, strongly favors a bullish outlook.
• Trigger/Entry: Buy at 152.630-152.640 zone if M30 shows clear bullish reversal pattern. This entry is highly conditional on US Richmond Manufacturing Index and CB Consumer Confidence not causing a significant USD sell-off today, and is best executed pre-FOMC/BOJ announcements.
• Stop-Loss: Place below 152.480, protecting against a break of the H4 EMA20 and previous swing lows, as this level is crucial for maintaining the short-term bullish structure.
• Profit Targets:
  • Target 1: 153.032 (H1 SAR) - This target aligns with immediate overhead resistance and represents a short-term recovery if the H4 EMA20 holds.
  • Target 2: 153.197 (H4 SAR) - This target is justified by the expectation that the policy divergence will continue to favor USD strength, pushing the pair towards higher resistance levels following a successful bounce.
• Session Context: London/NY session post-US data today for confirmation.

Alternative Market Scenario

• Invalidation: H1 close clearly above 152.636. This scenario becomes active if the primary H4 EMA20 support fails due to unexpectedly hawkish signals from the BoJ, a more aggressive Fed rate cut than anticipated, or significantly weaker-than-forecast US economic data.
• Bias: Bearish - A clear break below the H4 EMA20 would signal a deeper technical retracement, potentially exacerbated by a fundamental shift that reduces the policy divergence or sparks risk-off sentiment.
• Trigger/Entry: Sell on an H1 close below 152.630. Entry zone: 152.625-152.615.
• Stop-Loss: Place above 152.850, just above the H1 EMA20, to manage risk if the bearish momentum is short-lived.
• Profit Targets:
  • Target 1: 152.075 (H4 EMA50) - This target represents the next significant structural support level, which could be tested if the current pullback accelerates.
  • Target 2: 151.393 (D1 EMA20) - A break to this level would imply a more substantial shift in market dynamics, potentially if the fundamental factors supporting USD/JPY's ascent weaken considerably.
• Session Context: Could develop during the London session if the current pullback accelerates and gains traction on adverse news.

Risk Management & Catalyst Analysis

Trade Risk Assessment

The confluence quality for USD/JPY is currently medium. While the daily timeframe exhibits a strong bullish trend, the H1 and M30 charts indicate a short-term bearish pullback, and the H4 is bullish but consolidating. This mixed technical picture, combined with the extreme event risk from the upcoming FOMC and BoJ announcements, significantly elevates trading risk. Technical levels are highly susceptible to invalidation by news outcomes, and unexpected policy shifts from either central bank could trigger rapid and substantial price movements. Furthermore, any adverse developments in the US-China trade negotiations could shift risk sentiment abruptly, impacting the safe-haven Yen. The current Asian session's lower liquidity also increases vulnerability to sudden moves. Due to the elevated event risk, reducing position size by 50% for any trades executed before these events is critical. Normal position sizing can resume after the events and market reaction have stabilized. For intraday precision, use 1.25x ATR for stop-loss placement, considering widening to 1.5x ATR during more volatile London/NY sessions.

Economic Calendar & Event Impact

The upcoming economic calendar features several high-impact events that will significantly influence USD/JPY:

• US Richmond Manufacturing Index (Today, 14:00 UTC): Forecast -11, Previous -17 - A stronger-than-expected reading could provide immediate support to the USD, reinforcing the bullish primary scenario. A weaker reading could accelerate the current USD/JPY pullback.
• US CB Consumer Confidence (Today, 14:00 UTC): Forecast 93.4, Previous 94.2 - A positive surprise would bolster USD, while a significant miss could add to the bearish momentum on lower timeframes.
• US Pending Home Sales m/m (Tomorrow, 14:00 UTC): Forecast 1.7%, Previous 4.0% - A key housing market indicator; a weaker print could weigh on the USD ahead of the FOMC decision.
• US Federal Funds Rate (Tomorrow, 18:00 UTC): Forecast 4.00%, Previous 4.25% - High-impact event. The widely expected 25bps cut is priced in, but any deviation or hints of a larger cut would trigger significant USD selling.
• US FOMC Statement (Tomorrow, 18:00 UTC): High-impact event. The language regarding future rate path, economic outlook, and inflation will be crucial for USD direction. A more dovish tone could pressure USD, while any hawkish surprise would boost it.
• US FOMC Press Conference (Tomorrow, 18:30 UTC): High-impact event. Fed Chair Powell’s comments will provide further clarity on monetary policy, influencing USD/JPY significantly based on dovish or hawkish interpretations.
• JN BOJ Policy Rate (October 30, 02:30 UTC): Forecast <0.50%, Previous <0.50% - High-impact event. Expected to remain unchanged, but any surprise hike or hawkish shift would lead to substantial JPY strengthening.
• JN Monetary Policy Statement (October 30, 02:30 UTC): High-impact event. The statement's assessment of the economy, inflation, and future policy guidance will dictate JPY's reaction.
• JN BOJ Outlook Report (October 30, 02:48 UTC): High-impact event. Provides economic projections and inflation forecasts; crucial for understanding the BoJ's long-term policy stance.
• JN BOJ Press Conference (October 30, 05:30 UTC): High-impact event. Governor Ueda’s remarks will offer detailed insights into the BoJ's thinking, especially concerning the impact of fiscal stimulus and the conditions for future policy adjustments.
• JN Tokyo Core CPI y/y (October 30, 23:30 UTC): Forecast 2.6%, Previous 2.5% - Medium-impact event. A higher-than-expected inflation figure could increase pressure on the BoJ for future tightening, potentially offering some JPY support.

Synthesized Market Outlook

The USD/JPY pair is poised for significant volatility as it navigates a critical technical juncture ahead of major central bank decisions. The underlying bullish bias for USD/JPY remains robust, driven by the strong monetary policy divergence between a dovish Federal Reserve, which is widely expected to cut rates, and a cautious Bank of Japan, anticipated to maintain its accommodative stance. This fundamental backdrop is further bolstered by a general risk-on sentiment, fueled by optimism surrounding a potential US-China trade deal, which typically weighs on the safe-haven Japanese Yen. Additionally, Japan's proposed fiscal stimulus package is seen as reducing the urgency for the BoJ to tighten policy, reinforcing Yen weakness.

Technically, the current pullback to the H4 EMA20 at 152.636 represents a potential buying opportunity within the broader uptrend, conditional on a lack of significant negative US data today. However, the proximity of the FOMC and BoJ meetings introduces extreme event risk, and traders must exercise caution and adhere to strict risk management, including reduced position sizing. A successful hold of 152.636 would likely see the pair target 153.032 and 153.197. Conversely, a decisive break below 152.630, potentially triggered by an unexpected hawkish shift from the BoJ or a more aggressive Fed cut, would invalidate the immediate bullish setup and open the door for a deeper correction towards 152.075 and 151.393. Monitoring the outcomes of these central bank meetings and their forward guidance is paramount for confirming the next sustained directional move in USD/JPY.