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Fed Hawks Dominate Q4 2026 USD/JPY Outlook

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JPY
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The USD/JPY outlook for Q4 2026 is dominated by the Fed's interest rate path, which has already been priced in as hawkish.

Markets have factored in a likely rate increase before year-end, potentially as soon as October, due to persistent inflation and strong US economic growth.

The relationship between USD/JPY and front-end US rates is clear, with recent intervention episodes disrupting the positive correlation that existed prior to March 2026.

The carry trade remains intact despite higher Japanese funding costs, and while yen positioning has shifted sharply, it hasn't resulted in sustained USD/JPY downside.

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