USD/JPY hovers around a key pivot point, with expectations of Japanese rate cuts and central bank intervention serving as turning points

**Technical Outlook: Overbought Signals Emerge, Downward Pressure Builds**

The daily chart of USD/JPY shows an urgent warning. After rising for four consecutive trading days, the RSI indicator has entered overbought territory, and a head-and-shoulders pattern is gradually forming on the daily chart. These technical signals all suggest that the upward momentum is waning. The ten-month high of 157.89 is not far from last Friday’s consolidation level, and the market is approaching a critical time window (around November 26). Technical analysis recommends focusing on the 153.30 level, which could serve as an important support during this correction.

**Fundamental Reversal Brewing: Japan’s Policy Combination Gains Momentum**

Japan’s government and central bank are quietly shifting their policy stance. Prime Minister Sanae Takashi recently approved a ¥21.3 trillion (about $13.6 billion) economic stimulus plan. Government advisor Takashi Wada then stated that the current government “will participate more actively in the foreign exchange market” to counteract the yen’s weakness. The Bank of Japan (BOJ) is also accelerating its actions—Board Member Masayoshi Amamiya hinted that an interest rate hike could be announced earlier than expected this year, without waiting for the spring wage negotiations next year. Governor Kazuo Ueda further suggested that the BOJ is preparing to normalize monetary policy (including steps before Japan’s rate cuts) to support the yen.

**Dilemma of Inflation and Growth: Policy Choices Surface**

Data reveal Japan’s difficult dilemma. Japan’s October CPI rose 3% year-over-year, higher than September’s 2.9%; core CPI accelerated to 3.1%. Key inflation indicators have remained above the BOJ’s 2% target for 43 consecutive months, the longest streak since 1992. However, growth is deteriorating—the Q3 GDP contracted at an annualized rate of 1.8%, marking the first negative growth in six quarters. Rising import costs are pushing up domestic prices, and the BOJ and government are struggling to balance inflation control with economic growth. This also explains why Japanese policymakers are so sensitive to the yen’s continued depreciation.

**Divergence in US and Japan Policies Widens, Exchange Rate Faces Turning Point**

The Federal Reserve signaled dovishness last Friday. Vice Chair Williams hinted at a possible rate cut in December, emphasizing the need to balance maximum employment with inflation goals. More importantly, the release of October’s CPI scheduled for November 7 and November’s CPI scheduled for December 10 have both been delayed until after the Fed’s next meeting. This has led traders to price in a more than 50% chance of a rate cut in December. In the absence of key data, market expectations of a dovish Fed stance have further strengthened.

OCBC strategists note that while potential intervention by Japan may not fundamentally reverse the broad yen depreciation trend, it could slow the pace of decline. To achieve a trend reversal in USD/JPY, policymakers need to demonstrate fiscal discipline to restore credibility, and the BOJ needs to advance policy normalization. Meanwhile, a weakening dollar itself will also help.

In the medium term, the widening policy divergence between the Fed and BOJ may signal a downward trend for USD/JPY, but investors should be cautious of short-term volatility triggered by Japanese intervention. The 158-160 range remains a red line of market concern; once broken, it will test policymakers’ resolve.