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Downside Momentum Builds as Fed Uncertainty Weighs
Central Bank
Economic
Summary:
If this pattern repeats, a fresh leg lower could develop, targeting the rising trendline that coincides with support near 146.61.
Sell
CLOSEDUSDJPY
End Time
147.458
Entry Price
146.650
TP
148.500
SL
147.011 +0.084 +0.06%
495
Points
Profit
146.650
TP
146.963
CLOSING
147.458
Entry Price
148.500
SL
President Donald Trump’s move to dismiss Federal Reserve Governor Lisa Cook has been widely interpreted as an attempt to exert influence over the central bank and potentially steer monetary policy in his favor. The action has raised renewed concerns about the independence of the Federal Reserve, a theme closely watched by investors. Money markets are now pricing in nearly an 87.2% probability of a 25-basis-point rate cut in September, according to the CME FedWatch tool.
In the meantime, Dallas Fed President Lorie Logan has emphasized the need for clearer policy communication as the Fed evaluates possible adjustments to its strategy. She cautioned that addressing only the growing short-term demand for reserves could lead to an unsustainably large balance sheet. Instead, she stressed the importance of focusing on banks’ longer-term reserve requirements, with the Fed maintaining its balance sheet mainly through longer-dated Treasuries.
Last Friday, Fed Chair Jerome Powell signaled that a rate cut could be considered as early as September, citing “rising downside risks to the labor market” and a shift in the balance of risks that may justify a recalibration of policy. While acknowledging that tariffs might have a temporary inflationary impact, Powell suggested such pressures could fade, creating room for a less restrictive stance. Still, he warned that inflation risks remain tilted to the upside, while employment risks lean to the downside—highlighting the delicate trade-off currently confronting the central bank.
On Tuesday, Richmond Fed President Thomas Barkin reinforced a cautious stance, remarking that his outlook points to only a “modest adjustment” in rates, reflecting his view that the economy is moving forward at a moderate pace.
Meanwhile, U.S. Treasury yields have been under pressure. The 10-year yield slipped two basis points to 4.246%, while U.S. real yields—derived from nominal yields adjusted for inflation expectations—edged up 1.5 basis points to 1.826% at the time of writing.
Attention will soon shift to Thursday’s release of the second estimate of U.S. Q2 GDP. Expectations point to a 3.1% annualized growth rate, but any upside surprise could provide short-term support for the U.S. dollar. Conversely, a softer print may reinforce the market’s dovish rate outlook.
Across the Pacific, the Japanese yen drew support from comments by Bank of Japan Governor Kazuo Ueda. He noted that wage increases are broadening beyond large corporations and are likely to accelerate further amid tight labor conditions. His remarks have strengthened expectations that the BoJ could raise interest rates in the coming months. Traders will now look to Thursday’s Tokyo Consumer Price Index data, which could validate Ueda’s concerns about persistent inflation. A stronger reading may heighten pressure on the BoJ to tighten policy further, offering additional support for the yen.
Adding to the backdrop, Japan’s Economy Minister and chief trade negotiator Ryosei Akazawa stated ahead of his U.S. visit that he intends to request an executive order from Washington to lower reciprocal tariffs on automobiles—a move that could have trade and currency implications.
Technical Analysis
USDJPY recently faced downward pressure after approaching the 148.04 level—a zone that has repeatedly triggered selling momentum in recent sessions. Should this pattern repeat, a fresh leg lower could develop, targeting the rising trendline that coincides with support near 146.61. The price reaction at this level will be critical: a rebound could mark another attempt to defend the broader uptrend, while a clean break below may open the door for a deeper correction.
Adding weight to the bearish case, the 100- and 200-period moving averages on the 4-hour chart sit at 147.55 and 147.78 respectively. With USDJPY recently closing below these moving averages, downside momentum may continue to strengthen toward the next support zone. On the flip side, if the pair manages to reclaim the 148.00 threshold, buyers could eye the 148.81 resistance as the next upside target.
Trading Recommendations
Trading direction: Sell
Entry price: 147.45
Target price: 146.65
Stop loss: 148.50
Validity: Sep 05, 2025 15:00:00
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