USD/JPY fell on Tuesday, retreating to a low of 153.17 after setting a session high at 154.34 in Asia, as yen shorts began to cover positions amid rising risk aversion. A pullback in U.S. equities and oil prices ahead of Wednesday’s Fed decision further weighed on the pair, as traders reduced exposure to risky positions. One-week risk reversals shifted in favor of yen calls, reflecting heightened caution around the BOJ’s upcoming decision and expectations for tightening in Q1 2025. Japan’s $90 billion supplementary budget passage has reinforced speculation that the BOJ could act sooner to address inflation concerns.

Technically, USD/JPY’s bullish momentum faces a critical test at the 152.12-31 support zone, which contains the 200-DMA, Ichimoku cloud top, 50-DMA, and 21-DMA. A daily close below this zone would suggest a more bearish outlook, targeting further downside toward 151.50 and beyond. Resistance remains strong between Monday’s high at 154.48 and the 155 psychological barrier, which USD/JPY bulls need to break to reestablish control. For now, the pair’s inability to maintain gains above 154 highlights growing near-term risks to the upside.

With the Fed and BOJ decisions looming, volatility in USD/JPY is likely to increase. While the Fed is expected to keep rates steady, any dovish signals could cap U.S. yields and weigh on the dollar. On the other hand, rising expectations for BOJ tightening in early 2025, coupled with downside risk in global markets, could further support the yen. Traders will also watch for developments in Japanese equity markets and corporate activity, such as the Honda-Nissan merger talks, which could influence sentiment. A sustained move below 152.12 could mark the start of a bearish phase, while a break above 155 remains elusive.