USD/JPY Outlook Hinges on Hawkish Fed Rate Path

The outlook for USD/JPY in Q4 2026 largely hinges on the Fed's interest rate path, which markets have already priced in as very hawkish. With a first rate increase in September and strong conviction of another before year-end, possibly as soon as October, the dominant driver of USD/JPY is front-end US rates.

However, intervention risk caps upside near 160 area, despite positive carry remaining with higher Japanese funding costs. The Fed's dual mandate remains a key focus point, and markets expect two to three additional hikes by June next year.

The technical analysis suggests that the key year-end range for USD/JPY is between 155-160, emphasizing the importance of the Fed outlook in determining the pair's direction.