The Japanese Yen has retreated from its one-month high against the US Dollar after a modest recovery for the greenback and as positive equity market sentiment weighs on the safe haven currency. Nonetheless, the Japanese Yen’s downward trend seems somewhat capped as speculative anticipation of an increase in Bank of Japan’s interest rate has gained momentum going into the remainder of the week, with an 80% probability priced by the markets. US President Donald Trump’s tariff comments have rekindled inflationary worries and trade war jitters, further adding to global economic uncertainty. On the technical side, the USD/JPY remains firm above the mid-155.00s, with levels playing both supporting and resisting roles as traders wait for the BoJ’s closely watched policy meeting. This development, coupled with macroeconomic signals and geopolitical dynamics, will determine the near-term path of the currency pair.

KEY LOOKOUTS

• Markets are eagerly awaiting the announcement by the Bank of Japan for the rate hike that may go a long way in determining the trend of Japanese Yen and other world currencies.

• A moderate USD rebound, fueled by trade-related comments and inflation concerns, will be an important driver to watch for in the direction of the USD/JPY pair.

• The area of 155.00 is key support, while resistance is seen near 156.25-157.00, and these levels will help guide traders to potential breakouts or reversals in the USD/JPY pair.

• The threat of tariffs from US President Donald Trump against Canada and Mexico could reignite trade tensions, which may affect market sentiment and add volatility to global currency markets.

The Japanese Yen has pulled back after hitting a one-month high against the US Dollar, with a combination of factors driving the move, including a modest recovery in the Greenback and improved risk sentiment in equity markets. However, speculation of an imminent Bank of Japan (BoJ) rate hike, fueled by hawkish remarks from BoJ officials and rising inflationary pressure, has limited the JPY’s depreciation. Meanwhile, US President Donald Trump’s tariff remarks have revived trade war fears, adding a layer of uncertainty to global markets. Technical analysis suggests resilience in the USD/JPY pair above the 155.00 mark, while traders await the crucial BoJ policy decision and monitor key support and resistance levels to gauge the pair’s next move.

The Japanese Yen retreated from a one-month high against the US Dollar as markets anticipate a potential Bank of Japan rate hike. Meanwhile, Trump’s tariff remarks add global trade uncertainty. Technical levels above 155.00 support USD/JPY stability ahead of the BoJ policy meeting.

• The Japanese Yen pulled back after reaching a one-month high against the US Dollar amid a modest USD recovery and improved equity market sentiment.

• Market places are pricing 80% chance of a hike in Bank of Japan rate amid hawkish comments from officials as also rising inflationary pressure in Japan

• US President Donald Trump’s suggestions for placing 25% tariffs on Canada and Mexico sparked renewed fears of a trade war, and added to uncertainty facing global economic and currency markets.

• A modest USD rebound from its two-week trough, driven by inflation concerns and trade policy expectations, was also a tailwind for USD/JPY.

• The USD/JPY price remains supported close to the 155.00 mark, where resistance levels from 156.25-157.00 levels are influencing trading dynamics in the short term.

• Tuesday’s trade lacked any key economic data from both Japan and the US as market focus stayed on central bank meetings as well as geo-political cues.

• This is a crucial two-day BoJ policy meeting that is likely to decide the course of action for the Japanese Yen and world market sentiments.

The Japanese Yen (JPY) retreated from its one-month high against the US Dollar (USD), primarily due to the combination of several market dynamics such as modest recovery in the Greenback and positive risk appetite in equity markets. However, the downside for the JPY remains limited due to rising expectations of a Bank of Japan (BoJ) rate hike, with markets pricing in an 80% probability. Hawkish comments from BoJ officials and increasing inflationary pressure in Japan have strengthened this narrative. Meanwhile, US President Donald Trump’s announcement of proposed tariffs on Canada and Mexico has reignited trade war fears, adding volatility to global markets and contributing to a cautious trading environment.

USD/JPY Daily Price Chart.

Source: TradingView, Prepared By ELLYANA

On the technical front, the USD/JPY pair has displayed resilience above the 155.00 level, with support and resistance levels guiding market participants. Traders look at a resistance area at 156.25-157.00 for upward momentum. A further decline should bring the pair to the vicinity of the 154.50 support area. With scarce economic reports out this week, all the attention goes to a two-day BoJ policy meeting that will take a big toll on the short-term trend of the JPY. This meeting combined with geopolitical factors and changing US monetary policy expectations will most probably be decisive in determining the USD/JPY pair direction.

TECHNICAL ANALYSIS

The USD/JPY pair is holding strong around the 155.00 level, which has acted as an important support in a multi-month ascending trend channel. A break below here could take prices lower towards 154.50 intermediate support, possibly to 154.00 and 153.00 psychological support. Conversely, resistance remains around the 156.25 region and last night’s high at 156.60. Break above this latter level might provide a gateway for a run towards 157.00 with the next gain going towards the 157.25-157.30 area and the round figure of 158.00. Traders will look for a decisive breakdown through these levels to confirm the next directional move.

FORECAST

The USD/JPY currency pair may find a path towards resuming the bullish drive, should it be able to sustain trading above the critical resistance located at 156.25, targeting levels at 156.60 and then reaching the psychological mark of 157.00. Further, breaking out above 157.30 might lead the currency pair towards the 158.00 mark and potentially towards retesting the multi-month high in the 159.00 zone. This rally may be further supported by a stronger US Dollar recovery, as inflationary concerns and trade-related uncertainties continue to surface following Trump’s tariff remarks. A dovish outcome from the Bank of Japan’s policy meeting could also further fuel the pair’s rally, supporting bullish sentiment.

Failure to hold support at 155.00 may lead to further declines in the USD/JPY pair. The immediate next support level comes in at 154.50, where losses are more likely to extend further towards the 154.00 mark and down into the mid-153.00s. Further losses could place the pair through the psychological barrier at 153.00 if the Bank of Japan is interpreted as being more hawkish or if US Treasury yields continue falling in anticipation of a Federal Reserve rate cut. In this scenario, risk sentiment and technical breakdowns could worsen the downtrend.