Title: USD/JPY Weekly Outlook: Market Eyes Fed and BoJ for Direction
Source: Original analysis by Yohay Elam, Forex Crunch
URL: https://www.forexcrunch.com/blog/2025/07/27/usd-jpy-weekly-forecast-traders-await-fed-boj-meetings/
Rewritten by AI for informative and educational purposes
The US dollar ended the previous week with modest gains against the Japanese yen, marking a subdued trend that encapsulated investor caution ahead of two pivotal central bank meetings. Expectations surrounding the Federal Reserve and the Bank of Japan (BoJ) have been driving sentiment in the currency markets, particularly for USD/JPY.
Traders remain in anticipation mode as both central banks are set to make policy announcements that could determine USD/JPY’s next move. With recent economic indicators offering mixed signals, investors are digesting macroeconomic data and central bank guidance in order to position themselves ahead of upcoming events.
Below is a comprehensive breakdown of the USD/JPY outlook, looking at key economic indicators from both the United States and Japan, and what traders should expect as they prepare for event-packed weeks to come.
US Dollar Outlook: Data-Driven Sentiment and Fed Policy Path
The Federal Reserve is grappling with a delicate balancing act as inflation continues to be sticky even while broader economic growth shows signs of cooling. Recent macroeconomic data has fueled uncertainty over the central bank’s policy path.
In the previous week, key data points included:
– US GDP (Q2 advance): The economy expanded by 2.2 percent, slightly below the forecasted 2.4 percent.
– Core PCE Price Index (Fed’s preferred inflation gauge): Rose by 2.6 percent year-over-year, aligning with expectations but showing limited progress toward the 2 percent inflation target.
– Durable Goods Orders: Declined by 1.2 percent in June, slightly worse than the anticipated drop of 0.9 percent.
– Consumer Confidence Index (Conference Board): Improved to 108.7 in July, beating economists’ expectations of 106.5.
These indicators suggest a mixed picture for the US economy, with relatively firm consumer sentiment offset by tepid business investment. The question of whether the Fed has done enough to rein in inflation remains unresolved.
Key drivers for the upcoming Fed meeting include:
– Will the Fed signal further rate hikes or lean toward a pause?
– How will the Fed interpret persistent core inflation?
– What language will be used in the press conference regarding future policy steps?
Market participants largely expect the Federal Open Market Committee (FOMC) to hold interest rates steady at the next meeting. However, surprises in tone or forward guidance could serve as a catalyst for volatility in USD/JPY.
Japanese Yen Outlook: BoJ Under Pressure as Inflation Persists
In contrast to the Fed, the Bank of Japan is navigating a more complex situation. For decades, Japan has experienced deflationary pressures, but recent inflation trends have begun to challenge the BoJ’s ultra-loose monetary stance.
Key data points from Japan last week included:
– Tokyo Core CPI (July): Increased by 2.7 percent year-on-year, surpassing the forecast of 2.5 percent and exceeding the BoJ’s inflation target for the 17th consecutive month.
– Flash Manufacturing PMI: Slipped to 49.4 in July, below the neutral 50 mark, indicating contracting activity.
– Services PMI (Flash): Registered a firm 54.3, showing resilience in the non-manufacturing sector.
Although inflation looks more entrenched in the short term, the BoJ has maintained a cautious approach, emphasizing the need for stable wage growth before removing monetary accommodations. Governor Kazuo Ueda has signaled a willingness to consider tightening policy but only with sufficient evidence that Japan’s inflation is sustainable and rooted in domestic demand.
Key questions for the upcoming BoJ meeting:
– Will the BoJ modify its yield curve control (Y
Explore this further here: USD/JPY trading.