Selling USDJPY on temporary rebound amid persistently weaker dollar

The USDJPY currency pair is now trading modestly higher, hovering around 151.135 during today’s early session. This is significantly lower than the local high of 153.27 set on October 10. Despite the pair’s weakness, a rebound is forming, as the US dollar was previously pressured by escalating trade tensions between the United States and China.

Expectations of further interest rate cuts from the Federal Reserve (Fed) are weighing on the greenback. Chair Jerome Powell has confirmed the central bank’s plans to continue monetary easing in response to slowing economic activity. Market participants are currently pricing in two additional cuts by the year-end, making the dollar less attractive for investors.

The Japanese yen, in turn, is underpinned by geopolitical tensions and typical demand for a safe-haven asset. Given persistently high inflation, the Bank of Japan (BoJ) is more likely to tighten monetary conditions eventually. The baseline scenario, however, suggests the borrowing costs to remain unchanged at the next meeting. Nevertheless, the long-term policy divergence between Fed and BoJ rates is helping the yen to build strength.

At the same time, political uncertainty in Japan following the collapse of the ruling coalition is weighing on the national currency. However, traders who had previously opened short positions against the yen in anticipation of Sanae Takaichi's aggressive fiscal policy are now reconsidering their strategies amid growing doubts about her chances of becoming Prime Minister.

The technical setup highlights persistent bearish dynamics. The Stochastic Oscillator (5, 3, 3) has exited overbought territory and is now below the 50 level (%K=31, %D=43), continuing its decline. The Chaikin Oscillator has also been falling since October 9, signaling capital outflows and profit-taking, although a short-term slowdown in its decline on the morning of October 16 may indicate a temporary easing of selling pressure.

Consider the following trading strategy:

Sell USDJPY at the current price. Take profit: 149.110. Stop loss: 152.230.

This forecast is valid from October 16 to October 23, 2025.