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The USD/JPY 148 stabilizes, volatility weakens, but risks remain
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange]: The US dollar/Japanese yen stabilizes around 148, volatility weakens, but the risks still exist." Hope it will be helpful to you! The original content is as follows:
On Friday (September 19), the US dollar/JPY exchange rate consolidated around 148.00 due to expectations of the Bank of Japan resolution. The market generally expects key interest rates to remain at 0.5%, but given the resilience of the Japanese economy, the possibility of a 25 basis point rate hike in October is gradually rising.
Japan's core inflation rate slowed to 2.7% in August, the lowest level since November 2024. The decline in inflation is mainly due to the government's restart of electricity and gas subsidies and food price adjustments. At the same time, rising rice prices remain the main source of inflationary pressure: Rice prices rose 68.8% year-on-year in August, while the gains in June and July were close to 100% and 90.7% respectively.
The surge in rice prices has caused public dissatisfaction, resulting in a decline in the support rate of the ruling Liberal Democratic Party. Under pressure, Prime Minister Shigeru Ishiba announced his resignation after the coalition government lost a majority in both the Senate and House of Representatives. The Japanese government has taken urgent measures, including appointing a new agriculture minister, releasing rice reserves, and adjusting decades of policy to encourage planting of alternative crops.
Despite the impact of U.S. tariffs, Japan's economy grew by 1% year-on-year in the second quarter, better than expected. However, Japan's exports to the United States fell by nearly 14% in August, and automobile shipments fell by 28.4%. The automotive industry accounts for one-third of Japan's exports to the United States, and continues to be under pressure under 27.5% tariff pressure. Although the tariff has recently dropped to 15% as part of the trade agreement, bringing some relief, the burden on the industry is still very heavy.
Two Bank of Japan officials support rate hikes
In the Bank of Japan (BoJ)) After announcing that the short-term policy interest rate remained unchanged at 0.5%, the US dollar/JPY exchange rate fell 0.5% during the session. This result is in line with market expectations, and it is also the fifth consecutive meeting of the Bank of Japan to make the same decision.
The main reason for the weakness of the US dollar/yen is the votes of the Bank of Japan (BoJ) officials. At today's Bank of Japan's monetary policy decision-making meeting, for the first time since 2025, two officials (Takada Wata Village) voted to raise interest rates to 0.75%, who believe that Japan has achieved price stability (long-term inflation target is 2%) and the risk of further price increases is increasing.
The interest rate spreads put downward pressure on the US dollar/JPY exchange rate
The overnight index swap (OIS) market for short-term interest rates is still expected to raise the short-term overnight policy rate by 25 basis points (bps) to 0.75% by the end of 2025.
The spreads between the 3-month, 6-month and 1-year OIS rates have continued to expand xmtraders.compared to the 1-month OIS rate in the past two weeks. Among them, the one-year OIS interest rate has risen from 0.67% on September 8, 2025 to 0.73%.
The yield on the 2-year Japanese Treasury bond (JGB), which is more sensitive to changes in the Bank of Japan's monetary policy stance, continued to maintain an upward trend, climbing to 0.91%, the highest level since 2008.
As a result, the interest rate spread premium between 2-year U.S. Treasury bonds and 2-year Japanese Treasury bonds has continued to narrow steadily since the beginning of this year. In the week of August 18, 2025, the spread premium fell below the previous key support level of 2.90% (bearing breakthrough), which may provide impetus for the spread premium to further narrow downward support level of 2.05%.
This continued narrowing process shows that the attractiveness of 2-year U.S. Treasury bonds has decreased relatively xmtraders.compared to 2-year Japanese Treasury bonds, weakening the dollar's spread premium advantage. Therefore, this dynamic may put downward pressure on the US dollar/JPY exchange rate.
Technical Analysis
On the 4-hour chart, the US dollar/JPY exchange rate rebounded after falling to 145.41, and then stabilized around 148.00. The initial resistance level is 148.26. If it breaks through this level, it may open upward space to the range of 148.80–149.00. The support level is 147.55. If it falls below this support level, it may further fall to 146.90.
The overall trend is neutral and long: the exchange rate has rebounded from a local low, but the subsequent direction will depend on the Bank of Japan's policy signals and overall monetary policy-related news.
Summary
After mid-week fluctuations, the US dollar/JPY exchange rate has returned to stability. The forecast on September 19, 2025 (today) shows that the exchange rate may move towards 148.26 and is even expected to rise further.
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