Title: USD/JPY Weekly Forecast: Markets Eye Federal Reserve and Bank of Japan Signals
Source: Originally written by Yohay Elam for Forex Crunch
Link: [ForexCrunch.com](https://www.forexcrunch.com/blog/2025/07/27/usd-jpy-weekly-forecast-traders-await-fed-boj-meetings/)
The USD/JPY currency pair closed another week with strong momentum, climbing higher ahead of two critical central bank events: the Federal Reserve and the Bank of Japan (BoJ) meetings. With investors closely monitoring policy decisions that could determine the direction of monetary policy in both economies, USD/JPY trading remains in focus.
This article explores recent market movements, economic data releases, and central bank expectations that may shape the pair’s direction in the days ahead.
Recent USD/JPY Performance
The US dollar continued to post gains against the Japanese yen last week, mainly driven by divergent monetary policies. The Federal Reserve’s tightening stance remains intact, whereas the Bank of Japan is moving cautiously, fearing economic headwinds. The result is a widening interest rate differential favoring the US dollar.
Key highlights for the week ending July 26, 2025:
– USD/JPY rose for a third consecutive week.
– The pair ended the week around the 143.50 mark, up from 141.80 at the start of the week.
– Risk appetite, combined with soft Japanese economic data, underpinned the advance.
Japanese Economic Data Review
The Japanese economy continues to show signs of sluggish growth and subdued inflation. The Bank of Japan has been cautious about tightening monetary policy, citing the need to support wage growth and private consumption.
Key Japanese macroeconomic releases:
– Tokyo Core CPI came in at 2.5% year-on-year in July, missing expectations of 2.7%.
– Unemployment stood at 2.6%, slightly higher than expected.
– Retail sales declined 0.6% month-on-month in June after a 1.2% increase in May.
– Industrial production dropped 1.5% month-on-month, reflecting slowing manufacturing activity.
These figures reduce pressure on the BoJ to normalize policy quickly. While it did end its negative interest rate policy earlier this year, policymakers prefer gradual steps to avoid derailing the fragile economic recovery.
Federal Reserve Outlook
The Federal Reserve appears committed to maintaining elevated interest rates to bring inflation securely back to its 2% target. While rate cuts are on the table for late 2025 or early 2026, the Fed has made it clear that premature policy easing could risk reigniting inflationary pressures.
US economic indicators last week supported the Fed’s cautious tone:
– Q2 GDP rose by 2.3% annually, indicating resilient economic activity.
– Core PCE inflation, the Fed’s preferred metric, held steady at 2.6% – still above target.
– Jobless claims dropped slightly to 224,000, reflecting a still-tight labor market.
– Consumer confidence improved, with the University of Michigan’s sentiment index rising to 73.5.
Market pricing currently implies low odds of an immediate rate cut in the July or September meetings. Instead, traders are pricing in a potential cut in November or December, contingent on continued easing of inflation.
Upcoming Central Bank Meetings
The standout events for the coming week are the Federal Open Market Committee (FOMC) meeting on Wednesday and the BoJ policy announcement on Friday. These twin catalysts may trigger heightened volatility in USD/JPY.
FOMC Expectations for July:
– No change in the federal funds rate, which remains between 5.25% and 5.50%.
– Focus on updated economic projections and press conference statements from Fed Chair Jerome Powell.
– Market participants will watch for signals about the timing and magnitude of future rate cuts.
Key questions traders will ask:
– Has the inflation slowdown been sufficient to justify an easing path in 2025?
– Will Powell acknowledge growth
Explore this further here: USD/JPY trading.