USD/JPY, DXY Outlook: Short-Term Weakness, Long-Term Strength?

The USD/JPY and DXY charts are approaching defining support levels, creating a conflict between short-term weakness, long-term bullish continuation risks, and the risk of a broader structural bearish shift.

Several factors are contributing to volatility risks across both charts:

• Rising U.S. Treasury yields: The U.S. 10-year Treasury yield recently reached a new 2026 high near 4.8%, widening the interest-rate differential between the United States and Japan 
• Bank of Japan rate-hike expectations: Markets are pricing in the possibility of a 25-basis-point rate hike at the BOJ meeting scheduled for September 17–18. This expectation is providing short-term support for the yen.
• Crude oil and geopolitical risks: Crude oil prices have broken above a 7-month resistance level, increasing concerns about supply disruptions and inflation. This could support the dollar through safe-haven demand, although persistently higher oil prices could also raise concerns about global growth.

As of September 7, the fundamental and technical picture remains tilted towards geopolitical risks. Short-term dollar weakness is visible, but the broader risk narrative continues to support the possibility of renewed dollar strength if inflation, yields, and geopolitical tensions remain elevated.

DXY Price Outlook: Monthly Time Frame — Log Scale

Source: TradingView

Despite the DXY breaking below its 2026 uptrend, signaling short-term weakness, the longer-term structure remains tilted to the upside.

The key downside levels I am watching align with the Fibonacci retracement levels of the 2026 uptrend: 98.50, 98, 97 and 95.50. The 95.50 area is the defining barrier between a structural breakdown of the 18-year uptrend and a potential continuation of the longer-term bullish structure.

On the upside, reclaiming the 2026 uptrend near 100.30, followed by a move above 101 and 101.70, would restore the dollar’s strength against major markets. Such a move could lift the DXY toward new 2026 highs and add further pressure on Japanese officials facing persistent yen weakness.

This situation could become more critical if the interest-rate differential between the United States and Japan continues to widen.

Key DXY Scenarios

Bullish scenario: A recovery above 100.30, followed by a breakout above 101 and 101.70, would signal renewed dollar strength and support a move toward new yearly highs.

Bearish scenario: A sustained breakdown below 98.50 and 98 would increase the risk of a deeper correction toward 97 and 95.50. A clear break below 95.50 would confirm a more significant structural shift and challenge the long-term bullish trend.

USD/JPY Price Outlook: Weekly Time Frame — Log Scale

Source: TradingView

Technically, USD/JPY is breaking below a 3-month support level, signaling short-term yen strength while simultaneously approaching an uptrend support zone that has been in place since 2023.

Key Patterns and Scenarios in Focus

The breakdown below the April 2025–July 2026 channel points to short-term weakness and aligns with the Fibonacci retracement levels of that advance.

Price action is currently testing a breakdown below 154.80, the 38.2% retracement level. A sustained move below this level could target 152, corresponding to the 50% retracement, followed by 149 near the 61.8% retracement level.

The 149 area could become an important zone for a potential long-term rebound, aligning with the golden ratio, the broader 2023–2026 uptrend and increasingly oversold momentum conditions.

Bearish scenario: A clear breakdown below 149 would confirm broader structural weakness and increase the risk of a deeper correction in USD/JPY.

Bullish scenario: Holding above 149 would preserve the broader bullish structure. On the upside, reclaiming the 2026 uptrend boundaries near 158.40, 161 and 164 would restore USD/JPY strength and expose the upper channel boundary near 170.

Short-term weakness, the potential for long-term dollar strength and persistent geopolitical risks are shaping the outlook for USD/JPY and the DXY.

The next major catalysts include the U.S. CPI report on Friday, the BOJ meeting on September 17–18 and the FOMC meeting on September 16. The reaction in Treasury yields and the direction of crude oil prices will remain critical in determining whether the current weakness develops into a deeper structural decline or becomes another correction within a broader bullish trend.

Written by Razan Hilal, CMT

Follow on X: @Rh_waves