Will USD/JPY remain range-bound amid surging US inflation and Bank of Japan policy uncertainty?

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US Dollar vs Yen gains 0.48% today

Highlights

Stronger-than-expected October U.S. CPI and Core CPI data raised the likelihood of a December Fed rate hike to 91%.
Policy division within the Bank of Japan after surpassing its 2% inflation target has increased uncertainty and kept the Yen under pressure.
USD/JPY maintains strong bullish momentum, trading near 159.54 with a projected range of ¥158.74 to ¥160.34 as overbought signals imply possible short-term consolidation.

Policy divergence and Fed hike risk fuel dollar demand as yen pressured

October U.S. CPI and Core CPI readings surpassed expectations, driving up the probability of a December Federal Reserve rate hike to 91%, according to Tradingpedia. This shift in monetary policy outlook has attracted more demand for the U.S. dollar against the Yen, as noted by Mainichi, especially given the ongoing concerns over the widening U.S.-Japan interest rate gap. Meanwhile, the Bank of Japan minutes revealed division among policymakers about further tightening—even after inflation reached the 2% target—which has amplified policy uncertainty and maintained downward pressure on the Yen, according to Disruptionbanking.

Overbought signals mount as bullish momentum tests resistance

On the technical front, the pair is holding above the MA-20 and MA-50 on the hourly chart and remains above the MA-200 on the daily timeframe. Immediate support is established by the Ichimoku Kijun level at ¥158.67. MACD and ADX both signal persistent buying momentum, while Bull/Bear Power remains positive, indicating buyer dominance. However, the RSI, Stoch RSI, and CCI are all in overbought territory, suggesting potential for a corrective pullback. Price action is near today's high at ¥159.54, and the Awesome Oscillator is aligned with the prevailing positive momentum, but the convergence of overbought signals may limit further gains in the short term.

Range-bound movement likely as technical thresholds constrain direction

In the coming days, USD/JPY is expected to consolidate within a volatility band between ¥158.74 and ¥160.34. The most probable scenario is for the pair to remain range-bound as buyers and sellers reassess near key technical thresholds. A clear break above ¥160.34 could trigger fresh bullish momentum, while a drop below the Kijun support at ¥158.67 might open the way for a short-term correction.

Viktoras Karapetjanc, Traders Union expert, sees continued macro support for USD/JPY after stronger-than-expected U.S. inflation data and hawkish Fed expectations. He believes positive sentiment is reinforced by the wide U.S.-Japan rate gap and ongoing policy uncertainty at the Bank of Japan. Karapetjanc notes the technicals confirm buyer dominance, but overbought indicators signal room for a pause or short-term consolidation. He remains constructive in his outlook, given robust U.S. fundamentals and the persistent appeal of the dollar. "As long as the U.S. macro data and policy divergence favor the greenback, I expect buyer momentum to remain the dominant force in USD/JPY."

In a recent review, analysts noted that USD/JPY was exhibiting mixed technical momentum within a broader bearish alignment, with price action constrained by long-term resistance. The current analysis adds that, while persistent buying momentum and a strong policy-driven dollar underpin the pair, the risk of a corrective pullback remains elevated due to overbought technical conditions—making price reactions around breakout levels crucial for determining the next significant move.

Source of Data: USD Price Analysis by TU

The analysis is based on a proprietary model combining technical, on-chain, and expert data. Not investment advice. See methodology

The information is based on forecasts and does not constitute investment advice or a guarantee of future results. Market conditions may change. See our Disclaimer and Editorial Integrity for details.