FOMC meeting approaching: the triple game behind USD/JPY breaking through the 147 level

Market Focus Shifts to FOMC Meeting, USD/JPY Faces Critical Turning Point

USD/JPY surged 0.42% on Tuesday, approaching the 147.00 level. This rise is not an isolated phenomenon but the result of three intertwined forces—Federal Reserve policy expectations, escalating US-Japan trade tensions, and the ongoing contrast with the Bank of Japan’s accommodative stance.

FOMC Minutes to be Released on Wednesday, Becoming the Market’s Biggest Focus

The June Federal Open Market Committee minutes will reveal the Fed’s true stance on inflation and future rate cuts. According to CME FedWatch data, the market is currently pricing in a 62.9% probability of a 25 basis point rate cut in September. If the minutes alter this expectation, the subsequent re-pricing will directly impact the USD/JPY trend.

In stark contrast, the Bank of Japan (BoJ) has maintained interest rates at 0.5% since January, while the Federal Reserve’s benchmark rate remains in the 4.25% to 4.50% range. This interest rate differential is the fundamental driver behind the dollar’s relative strength and the yen’s pressure.

Trade Storm Escalates, Japan’s Economy Faces Multiple Challenges

The threats from the Trump administration have become reality. An official notice confirmed that from August 1, all Japanese imports will face a 25% tariff. This is not an isolated move—Japan already faces a 25% tariff on US exports of automobiles, and aluminum and steel imports carry a 50% tariff.

Responses from Japanese Prime Minister Shinzō Abe and Chief Trade Negotiator Akira Amari signal urgency. Amari emphasized, “It makes no sense to reach an agreement without an automobile tariff deal,” indicating negotiations are at an impasse. As an export-oriented economy, Japan’s shrinking demand from the US poses a significant threat, further worsening an already fragile economic outlook.

Technical Outlook: USD/JPY Targets 148, RSI Indicates Upside Potential

From a chart perspective, USD/JPY is approaching the 38.2% Fibonacci retracement of the January-April decline (147.14), serving as the immediate resistance. Once broken, the pair will retest the June high of 148.03, potentially challenging the May high of 148.65.

The 50% Fibonacci level is at 149.38. If USD/JPY can break above this, the round number of 150.00 will come into traders’ view. The Relative Strength Index (RSI) is currently near 61, reflecting strong bullish momentum, and the pair has not yet entered overbought territory, suggesting room for further gains.

Conversely, a break below 146.00 will reinitiate downside risks, with bears testing the 50-day simple moving average (144.66) and support at 142.00.

Conclusion

The future performance of USD/JPY hinges on whether the FOMC minutes can confirm market expectations of rate cuts. Coupled with deepening trade tensions involving Japan, the yen remains under pressure in the short term. However, traders should remain alert to risks of policy shifts and technical reversals.