USD/JPY is defying tradition, moving in sync with riskier assets like bitcoin and equities rather than safe havens or interest rate expectations. Ahead of this week’s FOMC decision, traders are increasingly turning their attention to U.S. data, sentiment indicators, and trade developments instead of relying on Fed policy clues. The pair’s breakout above 144.00 underscores bullish momentum as risk appetite dominates.
Yen’s Correlation with Bitcoin and S&P 500 Rises
Over the past two weeks, USD/JPY has developed stronger correlations with bitcoin and the S&P 500 futures, posting coefficients of 0.83 and 0.75, respectively. Meanwhile, its traditional correlations with gold and the Swiss franc have weakened. This signals a shift: the Japanese yen is now acting more like a risk proxy than a safe haven.
While the franc retains its defensive properties, USD/JPY is increasingly sensitive to swings in broader market sentiment. As a result, investors should prioritize movements in high-beta assets when assessing yen trends in the short term.
Fed Pause Expected, But U.S. Data May Move Markets
The FOMC meetings are approaching but market participants do not expect any important policy adjustments, or relatively significant guidance changes, from the Fed. Current market pricing shows a 97 percent probability of the Fed keeping the target rate constant in range of 4.25 – 4.50 percent. Given the lack of revision in the projections at this meeting, I don’t expect an impact from Chair Powell, other than a restatement of the Fed’s wait and evaluation approach because of the uncertainty in the U.S. economy.
Although the FOMC meetings are coming up, market participants are not anticipating major policy adjustments or somewhat significant guidance. Current market pricing implies a 97 percent chance that the Fed will hold the target rate steady at 4.25–4.50 percent.
Given that there are no updated projections in this meeting, it is unlikely that Chair Powell will significantly impact the market – he may restate the Fed’s wait and see approach given the uncertainty in the U.S. economy.
Technical Breakout Points to More Upside for USD/JPY
The technical picture for USD/JPY remains bullish. The pair decisively broke above resistance at 144.00 last Thursday and confirmed the move with a successful retest on Friday. Momentum indicators like RSI and MACD are turning neutral after an extended bearish phase, further supporting the upward bias.
Key resistance levels include Friday’s high near 145.90, followed by the 50-day moving average and a heavier zone between 148.15 and 148.70. On the downside, the uptrend support from April lows and the 141.65 level are crucial to watch if sentiment deteriorates.
Data and Risk Sentiment Hold the Key
As the FOMC is unlikely to supply any new directional cue, traders should observe the U.S. economic data and economic sentiment around the U.S. to forecast the next move higher in USD/JPY. The yen’s recent moves have been curious, tracking risk assets instead of yields, indicating a change in the way the market perceives its narrative.
Since Japan is entering a holiday-shortened week, we should expect thin liquidity to make moves more exaggerated. We can additionally look for U.S. debt auctions and developments regarding trade to introduce new volatility. If risk appetite remains resilient, this pairing could continue its rally towards the upper 140s in the days ahead.
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