USD/JPY forecast: double-top forms ahead of FOMC, BoJ decisions

The USD/JPY exchange rate moved sideways as traders focused on the upcoming Federal Reserve and Bank of Japan (BoJ) interest rate decision, and after the first meeting between Donald Trump and Sanae Takaichi, the new Japanese prime minister. It was trading at 152.43, up from the year-to-date low of 139.

Trump and Sanae Takaichi meeting 

The USD/JPY exchange rate moved sideways after Donald Trump met with Takaichi and hailed the relationship between the US and Japan.

The two presidents signed several deals, including on rare earth materials and magnets. They also formalized the trade deal with Japan, including the country’s pledge to invest $550 billion in the United States.

Trump, without providing any details, pledged a stronger relationship with Japan, saying:

Federal Reserve interest rate decision 

The next important catalyst for the USD/JPY exchange rate will be the upcoming Federal Reserve interest rate decision on Wednesday.

Economists expect the bank to slash interest rates by 0.25%, bringing the benchmark rate to between 3.75% and 4%. It will be the second consecutive month of cuts after it slashed by 0.25% in September.

The bank will cut interest rates to boost an economy that is showing signs of slowing down. A recent report by ADP showed that the private sector lost 36,000 jobs in September after losing another 3,000 in the previous month.

Inflation has not gone parabolic, with the headline Consumer Price Index (CPI) rising to 3.0% in September, lower than the median estimate of 3.1%.

Core inflation, which is watched more closely, moved from 3.1% to 3.0%, providing the strongest case for rate cut in the upcoming meeting. 

Bank of Japan interest rate decision

The other key catalyst for the USD/JPY exchange rate is the upcoming Bank of Japan interest rate decision scheduled on Friday.

Economists polled by Reuters believe that the bank will leave interest rates unchanged and possibly hint at a hike in its December meeting as inflation is still strong. 

The decision comes as the bank is now under political pressure, with the new prime minister calling for more stimulus to boost the economy amid Donald Trump’s tariffs. She has already called for billions of dollars in spending.

USD/JPY technical analysis 

The daily timeframe chart shows that the USD/JPY exchange rate moved from the year-to-date low of 139.86 to a high of 153.12. It formed a double-top pattern there and has now pulled back a bit.

The pair remains above the 50-day and 100-day Exponential Moving Averages (EMA), which have provided it with substantial support.

However, the outlook is bearish because of the double-top pattern. If this happens, it will likely drop and hit the key support at 150. A move above the double-top pattern at 153 will invalidate the bearish outlook.