The Japanese Yen is in a tug-of-war between bullish and bearish camps, as expectations of more rate hikes by the Bank of Japan (BoJ) clash with the strength of the US Dollar (USD). Latest statistics showing increasing inflation and strong industrial production in Japan will also give further justification to further monetary tightening, which makes the Yen resistant. However, geopolitical tensions are still in the limelight: rising tensions at the Sea of Japan and continued US trade policy uncertainties, making market sentiment very fragile. Low price action for the USD and anticipation of the US PCE Price Index report will cap further gains in the USD/JPY pair. While technical indicators suggest downside risks toward the 153.00 level, a breakout above the 155.00 mark could trigger a short-covering rally, potentially shifting the near-term bias in favor of the bulls.

KEY LOOKOUTS

• Rising Tokyo CPI and robust economic data fuel expectations of further BoJ tightening, supporting the Yen against excessive depreciation.

• Russian military activity near Japan and uncertainties in US trade policies could raise safe-haven demand for the JPY, influencing its short-term movement.

• Watch out for this preferred inflation gauge of the Fed, as it may dictate further strength in USD strength and next move in USD/JPY.

• A break below 153.00 could confirm further downside, and sustained strength above 155.00 might encourage a bullish breakout in USD/JPY.

The trajectory of the Japanese Yen continues to be shaped by a mix of domestic economic indicators, global geopolitical developments, and US monetary policy expectations. The strength in Tokyo CPI and robust industrial growth enhance the probability of further Bank of Japan (BoJ) rate hikes, which should continue to underpin the JPY. Geopolitical risks, however, such as Russian military activities near Japan and trade tensions between the US, add layers of uncertainty, potentially boosting safe-haven demand. All eyes are on the US PCE Price Index, which is an important indicator for Federal Reserve policy direction, and may influence USD strength and subsequently USD/JPY movements. From a technical perspective, a breakdown below 153.00 could trigger further losses for the pair, while sustained momentum above the 155.00 level may fuel a bullish rally.

The Japanese Yen remains under pressure despite expectations of further BoJ rate hikes, supported by rising inflation and strong economic data. Geopolitical tensions and US trade policies add uncertainty, while the upcoming US PCE inflation data could influence USD/JPY movements. A break below 153.00 may signal further downside, while sustained gains above 155.00 could trigger a bullish rally.

• Higher Tokyo CPI and robust industrial growth feed into speculation that the Bank of Japan may continue to tighten monetary policy, supporting the Yen.

• Russian military move closer to Japan and US trade policies introduce uncertainty which could increase safe havens for JPY.

• The Federal Reserve’s favorite inflation measure remains in focus for its effects on USD strength and the movement of USD/JPY.

• The latest US GDP data showed a decline in growth, which may influence Fed policy and overall market sentiment.

• A drop below 153.00 could signal further losses, while a sustained move above 155.00 may trigger a bullish breakout.

• US President Donald Trump’s threats of higher tariffs on Mexico, Canada, and BRICS nations could impact global markets and JPY’s safe-haven appeal.

• Higher Treasury yields, which are fueled by inflation fears, are supportive for the USD. Expectations for Fed policy are critical going forward for USD/JPY.

The Japanese Yen remains trapped in a gossamer balance between BoJ rate hike expectations and greater global economic forces. Recent data show a rise in Tokyo’s CPI and strong industrial production, hinting that the central bank of Japan will be on its course toward policy normalization. This boosts the Yen from excessive depreciation. However, there are geopolitical risks, such as Russian military activities near Japan, and trade tensions between the US and other nations, which leave market sentiment unsure. US President Donald Trump’s warnings of a potential hike in tariffs on Mexico, Canada, and BRICS could trigger volatility in the markets. The latter is likely to raise safe haven demand for JPY.

USD/JPY Daily Chart

TradingView Prepared by ELLYANA

However, attention now turns to US Personal Consumption Expenditure Price Index that can be taken as the preferred measure of inflation at the Fed’s end and influence the USD strength. A stronger-than-expected reading should reinforce the hawkish Fed narrative, sending USD/JPY higher, and a softer reading should cap upside for the Dollar. Another issue is that the US economy also slowed in Q4, thus economic momentum-related concerns should begin to factor in market expectations as well. On the technical side, levels to watch are support near 153.00, where a collapse could speed losses, and resistance at 155.00, where a sustained move above could trigger a bullish breakout.

TECHNICAL ANALYSIS

USD/JPY now stands at a critical juncture that depicts both key support and resistance in dictating its next move. A protracted break below 153.00 could accelerate selling, which in turn would likely send the currency pair lower again to the range of 152.40 to 152.00. From there, possible support is a 100-day Simple Moving Average (SMA). If on the other hand, USD/JPY breaks above the strong resistance of 154.50 and through 155.00 psychological, which is considered quite a big milestone, it is likely to unlock a bullish run. Further upside may drive the pair towards 155.40-155.45, with a further extension to 156.00 and the weekly high of 156.25. Oscillators on the daily chart are gaining negative traction but remain outside the oversold zone, which suggests room for further correction unless strong buying momentum emerges.

FORECAST

USD/JPY remains intact if the pair manages to sustain above the 154.50 level, with the next major hurdle being the 155.00 psychological mark. A decisive breakout above this level may trigger fresh impetus for bulls, to attain further gains towards 155.40-155.45. Further buying pressure may take the pair up to about 156.00 and even attack the 156.25 weekly high. Freshly built strength of the uptrend amid a stronger-than-expected US PCE inflation report and rising US Treasury yields could be just what it needed to break into an uptrend, supporting the bullish bias. In addition, a sustained Federal Reserve hawkish sentiment could provide strength to the USD, ensuring an upward momentum.

On the negative side, the failure to maintain above the support level of 153.00 could drag it down and continue the correction cycle. Subsequent losses would occur towards 152.40 and 152.00. This could prove a strong resistance at the 100-day SMA line at 152.00 that may restrict more losses. If bears increase pressure, then USDJPY could fall to 151.50, where even more technical supports can come into play. Deteriorating US economic figures, a dovish turn in Federal Policy, or safe haven demand for the Yen in light of rising geopolitical risks might spell bad news for bulls. Additionally, if the Bank of Japan is committed to a more aggressive monetary tightening, the Yen would better, making way for lower price action.