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Key takeaways

• BoJ policy shift intact: Japan’s central bank is still moving gradually toward policy normalization, supporting renewed yen strength.
• Tankan survey improvement: Q3 2025 Tankan survey for large manufacturers improved to 14, its highest since Q4 2024, boosting economic confidence.
• Yield spread narrowing: US-Japan yield differentials are shrinking, making US Treasuries less attractive versus JGBs, pressuring USD/JPY lower.
• Technical setup: A break below 146.30 may trigger a medium-term bearish breakout, exposing deeper downside targets.

After trading in a choppy sideways range for almost five months since late April 2025, the Japanese yen is likely on the brink of undergoing a medium-term (multi-week) appreciation against the US dollar.

Several macro/fundamental and momentum factors support this potential impending Japanese yen strength revival view, coupled with the Bank of Japan (BoJ)’s ongoing path of monetary policy normalization (increasing interest rates gradually).

Let’s review them in greater detail.

Further improvement in the Tankan survey with narrowing of US-Japan implied policy rate curve spread

Fig. 1: Japan core-core CPI, Average Cash Earnings, Tankan Survey, Consumer Confidence as of Sep 2025 (Source: MacroMicro)

Fig. 2: US/Japan short-term policy rate curve spread as of 1 Oct 2025 (Source: MacroMicro)

One of the key economic data points, other than the inflation trend, that the BoJ monitors to determine and set the path of monetary policy in Japan, is the quarterly Tankan surveys on manufacturers, which poll their outlook on overall business conditions, considering profits under current conditions and for the next three months.

The latest Q3 2025 Tankan survey for large Japanese manufacturers (in index form) has further improved to 14 from 13 in Q2, which is also its highest reading since Q4 2024, as trade tariff tensions between the US and Japan have eased since the finalization of the US-Japan trade deal in early September 2025 (see Fig. 1)

Hence, the short-term interest rate futures market in Japan has continued to price in an interest rate hike by the BoJ in Q4 2025. This observation is evident in the US-Japan implied policy rate curve spread.

The monthly implied short-term interest rate spread (via short-term interest rate futures) between the US and Japan has continued to narrow in the next three months from the October 2025 print of 3.25% to 3.12% in November 2025, 2.99% in December 2025, and 2.80% in January 2026.

In addition, the current US-Japan implied policy rate curve spread has shifted downwards from three months ago at this juncture (see Fig. 2). The further narrowing of the US/Japan implied short-term interest rate spread is likely to put downside pressure on the USD/JPY.

The 10-year US Treasury/JGB yield spread is breaking below a major support level

Fig. 3: Yield spreads of US Treasury/JGB with major trend of USD/JPY as of 2 Oct 2025 (Source: TradingView)

The yield premium between the 2-year US Treasury note and the 2-year Japanese Government Bond (JGB) has broken below a former major support of 2.90% since the week of 18 August 2025 and narrowed further to 2.69% at the time of writing.

The 10-year yield spread between the US Treasury note and JGB is now challenging the 2.47% major support after it hovered slightly above it for the entire month of September 2025. Right now, it is staging an intraday breakdown with a current level of 2.45% (see Fig. 3)

The continued narrowing of the yield differential indicates that 10-year US Treasuries are becoming relatively less attractive compared to 10-year JGBs, a dynamic that may in turn place downside pressure on USD/JPY.

Let’s now examine the USD/JPY from a technical analysis perspective to determine its latest short-term (1 to 3 days) trend bias and key technical levels to watch.

Fig. 4: USD/JPY minor trend as of 2 October 2025 (Source: TradingView)

Fig. 5: USD/JPY medium-term trend as of 2 October 2025 (Source: TradingView)

Preferred trend bias (1-3 days)

Bearish bias below 147.80/148.10 short-term pivotal resistance for USD/JPY within its range configuration for the next intermediate support to come in at 146.70, followed by the medium-term “Ascending Wedge” range support now at 146.30.

A break below 146.30 triggers a potential medium-term bearish breakout of the USD/JPY for a multi-week bearish impulse down move sequence to expose the next 145.20 intermediate support in the first step.

Key elements

• The price actions of the USD/JPY have traded below its 20-day and 50-day moving averages, which are now acting as a key short-term resistance zone of 147.80/148.10 (see Fig. 4).
• The hourly Stochastic oscillator of the USD/JPY has now risen to a resistance level of 75, which is coming close to its overbought zone (above the 80 level) (see Fig. 4)
• The USD/JPY has undergone a 5-month bearish “Ascending Wedge” range configuration since the 22 April 2025 low of 139.89, with the lower boundary of the “Ascending Wedge” now acting as a key medium-term support at 146.30 (see Fig. 5).
• The daily MACD trend indicator of the USD/JPY has flashed out a bearish crossover condition at this juncture after it formed a resistance on Monday, 29 September 2025. These observations suggest a potential imminent change of medium-term trend condition on the USD/JPY from sideways to a downtrend (see Fig. 5).

Alternative trend bias (1 to 3 days)

A clearance above 148.10 invalidates the bearish scenario for the USD/JPY and sees a squeeze up towards the next intermediate resistance at 148.60/148.90, followed by the key medium-term resistance of 149.90 (the upper boundary of the “Ascending Wedge” range configuration).

Daily Pivots: (S1) 1.1705; (P) 1.1742; (R1) 1.1768; More...

Intraday bias in EUR/USD remains neutral and outlook is unchanged. Considering bearish divergence condition in D MACD, sustained trading below 55 D EMA (now at 1.1675) will argue that 1.1917 was already a medium term top. Deeper fall should then be seen to 1.1390 support next. Nevertheless, break of 1.1819 will bring retest of 1.1917 high instead.

In the bigger picture, rise from 1.0176 (2025 low) is seen as the third leg of the pattern from 0.9534 (2022 low). 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916 was already met. For now, further rally will remain in favor as long as 1.1390 support holds, and firm break of 1.2000 psychological level will carry larger bullish implications. However, firm break of 1.1390 will suggest that rise from 1.0176 has already completed and bring deeper fall to 55 W EMA (now at 1.1231).

Daily Pivots: (S1) 146.37; (P) 147.30; (R1) 148.01; More...

Intraday bias in USD/JPY remains on the downside as fall from 149.95 is in progress for 145.47. Strong support from there will keep the pattern from 150.90 corrective. That is, rise from 139.87 would still be in favor to resume at a later stage. However, decisive break of 145.47 will indicate near term reversal, and bring deeper fall to 142.66 support next.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). Decisive break of 61.8% retracement of 158.86 to 139.87 at 151.22 will argue that it has already completed with three waves at 139.87. Larger up trend might then be ready to resume through 161.94 high. In case the corrective pattern extends with another fall, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.

Daily Pivots: (S1) 1.3432; (P) 1.3479; (R1) 1.3524; More...

Intraday bias in GBP/USD remains neutral with focus on 1.3535 resistance. Firm break there will suggest that pullback from 1.3725 has completed, and bring stronger rally to 1.3725/87 key resistance zone. On the downside, though, break of 1.3322 will resume the fall from 1.3725, as the third leg of the corrective pattern from 1.3787, and target 1.3140 support.

In the bigger picture, rise from 1.0351 (2022 low) is still seen as a corrective move. Further rally could be seen to 61.8% projection of 1.0351 to 1.3433 (2024 high) from 1.2099 (2025 low) at 1.4004. But strong resistance could be seen from 1.4248 (2021 high) to limit upside. Sustained break of 55 W EMA (now at 1.3155) will argue that a medium term top has already formed and bring deeper fall back to 1.2099.

Daily Pivots: (S1) 0.7937; (P) 0.7963; (R1) 0.7998; More…

Range trading continues in USD/CHF and intraday bias stays neutral. On the upside, sustained trading above 55 D EMA (now at 0.8011) will suggest that rise from 0.7828 is already correcting whole fall from 0.9200. Further rise should the be seen to 0.8170 resistance and possibly above. However, break of 0.7908 will turn bias back to the downside for retesting 0.7828 low.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8332 support turned resistance holds (2023 low).

Daily Pivots: (S1) 0.6592; (P) 0.6610; (R1) 0.6631; More...

Intraday bias in AUD/USD stays neutral at this point. On the upside, firm break of 0.6627 resistance will suggest that pullback from 0.6706 has completed as correction, after drawing support from 55 D EMA (now at 0.6551). That will keep the larger rally from 0.5913 alive and bring retest of 0.6706 high. However, on the downside, sustained trading below 55 D EMA will confirm rejection by 0.6713 fibonacci resistance, and bring deeper fall to 0.6413 cluster support (38.2% retracement of 0.5913 to 0.6706 at 0.6403).

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. Outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Nevertheless, considering bullish convergence condition in W MACD, sustained break of 0.6713 will be a strong sign of bullish trend reversal, and pave the way to 0.6941 structural resistance for confirmation.

Daily Pivots: (S1) 1.3909; (P) 1.3933; (R1) 1.3959; More...

Intraday bias in USD/CAD remains neutral as consolidations continue below 1.3957. On the upside, firm break of 1.3957 will resume the corrective rebound from 1.3538. But upside should be limited by 1.4014 cluster resistance to bring reversal. Meanwhile, sustained trading below 55 4H EMA (now at 1.3891) will bring deeper fall back to 1.3725 support.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 cluster resistance (38.2% retracement of 1.4791 to 1.3538 at 1.4017) holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 (2025 high) at 1.3069. However, sustained break of 1.4014 will argue that fall from 1.4791 has completed, and bring stronger rally to 61.8% retracement at 1.4312.

Daily Pivots: (S1) 0.9332; (P) 0.9353; (R1) 0.9370; More...

EUR/CHF retreated again after edging higher to 0.9371 and intraday bias stays neutral. On the upside, above 0.9371 will target 0.9394 resistance. Firm break there should confirm that the pullback from 0.9452 has completed, and bring retest of this resistance. Nevertheless, break of 0.9311 will resume the fall from 0.9452 to 0.9265 support.

In the bigger picture, the down trend from 0.9204 (2018 high) might still be in progress considering that EUR/CHF is staying well inside the long term falling channel. However, with bullish convergence condition in W MACD, downside potential should be limited in case of another fall. Instead, firm break of 0.9660 resistance will be an important sign of medium term bullish trend reversal.

Markets

With most ‘official’ US data releases suspended due to the government shutdown, markets (and the Fed) now have to rely on the likes of the ADP private jobs report and ISMs. By the way, if the shutdown continues, most of this month’s market relevant US data might already be published after tomorrow’s US services ISM. Even so, especially the ADP private job report yesterday more than decently met heightened expectations as super-sub. According to ADP, the US economy in September lost a net 32k of private jobs, compared to a hoped for 51k gain. A big part of this was due to an annual benchmark revision. But the figure of the previous month was also downwardly revised to -3k from 54k. ADP assessed that job creation in the US continues to lose momentum across most sectors as US employers have been cautious with hiring. This evidently supports the Fed’s analysis that the balance in the labour market might be tilting in a negative way, supporting the case for more (precautionary?) rate cuts. Later in the session, the US manufacturing ISM was weak, but as expected (49.1 from 48.7). The employment index remained in contraction territory (45.3 from 43.8). Other details, including orders were mostly unconvincing as well. Even so, it was the big miss in ADP that triggered a sharp bull steepening on US markets with US yields declining between 7.6 bps (2-y) and 2.2 bps (30-y). Despite a possible lack of further official data evidence, markets now again fully discount a follow-up Fed rate cut at the October meeting. In Europe, September CPI data (headline 0.1% M/M and 2.2% Y/Y from 2%, core 2.3%) were exactly as expected and didn’t question the ECB status quo. German yields changed less than 2 bps across the curve. The shutdown and softer US data at least didn’t hamper stock market momentum with the S&P 500 closing at a record. Interestingly, also the EuroStoxx 50 closed at new all-time record. Also remarkable, the dollar held up well in context of positive global risk sentiment while at the same time substantially losing interest rate support. EUR/USD even didn’t try to attack the 1.18 big figure (close 1.1732). The yen outperformed, but that move already occurred before the ADP release (USD/JPY close 147.07, of the intraday low near 146.6).

Asian markets this morning follow the broader (low volatility) risk rally. Most US data releases (claims, factory orders) probably are suspend due to government shutdown. Data released outside the US are few and mostly with only limited market relevance. In Japan, we look out for a speech of Deputy governor Uchida as markets look for additional ‘confirmation’ on a next rate hike later this month. On global US yields markets, there is probably little reason for investors to change expectations for two additional Fed rate cuts later this year. Intrinsically, this is a dollar unfriendly, or even better, a non-USD FX friendly context, but the US currency mostly still has material technical breathing space before meeting key support levels against most other majors (DXY, EUR/USD). Even USD/JPY still has to way to go before reaching the 145.85/50 support area.

News & Views

Italy is said to include a 3% deficit in its budget draft for 2026, people familiar with the latest version said. Italy has been running 3%+ deficits since 2019. The European Commission has put the country in the excessive deficit procedure as a result. But potentially narrowing it to the bloc’s allowed maximum of 3% puts Italy on track to exit it earlier than expected. That would pave the way to expand spending in other areas, including defense. The southern country has committed to meet the 5% NATO target. Italy’s recent fiscal track record has been awarded by financial markets via a steep drop in interest rates. Its credit risk premium (vs swap) has fallen to around 84 bps, just below France. That’s about half the amount since premier Meloni took office in 2022.

Rating agency Fitch doesn’t expect the US government shutdown to affect the country’s rating in the near term, adding that it nevertheless continues to “assess developments around the U.S. regulatory environment, rule of law, and institutional checks and balances as part of its sovereign credit analysis”. Neither does it thinks that the US dollar would lose its predominant reserve currency status - an important rating strength - in the foreseeable future. S&P, another rating agency, separately said government shutdowns usually have a marginal effect on the broader economy and does not consider them to be credit events for the US rating. It did warns for secondary effects that could build up over time, as furloughed workers cut spending while delays in economic data adding uncertainty for the Fed. It estimates the shutdown could trim GDP growth by 0.1-0.2% for every week the government is closed.

Swiss consumer prices dipped -0.2% mom in September, in line with expectations. Core CPI also dropped -0.2% mom. Domestic product prices fell -0.3% mom while imported product prices slipped -0.1% mom.

On an annual basis, headline CPI was unchanged at 0.2% yoy, slightly below the 0.3% forecast but positive for a fourth straight month.

Core inflation, excluding fresh and seasonal items as well as energy, held steady at 0.7% yoy. Domestic prices were unchanged at 0.6% yoy. Imported prices swung higher, rising to -0.9% yoy from -1.3% previously.

Full Swiss CPI release here.