Selling USDJPY as bullish momentum exhausts and positive yen outlook strengthens

During today’s early trading, the USDJPY currency pair was close to 148.663. The price has lost momentum after its recent rally. A seemingly strong dollar, spurred by cautious comments from Federal Reserve (Fed) officials, was the main driver in the past few days, but this impulse has already exhausted itself and cannot serve as a foundation for further growth.

From a technical standpoint, bullish momentum is waning. The ascent from 145.47 to current levels looks overheated. Although the Stochastic Oscillator shows buyer dominance, it remains near oversold territory, and its lines have formed a bearish crossover. At the same time, the On-Balance Volume indicator points that the last surge in USDJPY was not significantly supported by volume, which increases the probability of a downward reversal.

Fundamentally, the yen’s appeal is higher than the dollar’s. An interest rate hike by the Bank of Japan (BoJ) seems inevitable, considering July's meeting minutes and two hawkish votes in September. Political uncertainty ahead of the October 4 leadership election is a temporary factor, but its outcome, regardless of the winner, will ease this pressure and allow the market to focus on monetary stance.

There is a high probability that the US dollar could weaken in the coming days. Key inflation data to be published on Friday may indicate a slowing trend, forcing the Fed to be more active in easing monetary conditions. This would negatively impact the dollar across all markets.

Traders have a good opportunity to open a short position at current levels, as the risks of the pair’s downward reversal are rather significant.

Pay attention to the following trading plan:

Consider selling USDJPY, with Take profit set near the lower boundary of the flat trend, within which the pair has been trading since August, at 146.970, and Stop loss at 149.940, above the channel’s upper limit.

The forecast is relevant between September 25 and October 2, 2025.