USD/JPY driven by emotions: Bank of Japan raises rate to highest level since 1995

RoboForex Analysis Department RoboForex

The USD/JPY pair declined to 160.13 on Tuesday after two highly volatile trading sessions. Investors remain focused on the Bank of Japan’s latest policy meeting.

The regulator raised its key interest rate by 25 basis points to 1.0%, the highest level since 1995. This move is intended to help contain inflation and support the national currency, which has remained under pressure for most of the year.

In recent weeks, the yen has been actively used in carry trade operations: investors borrowed funds in the low-yielding Japanese currency and invested them in higher-yielding assets. This increased pressure on the JPY despite the Bank of Japan’s gradual policy tightening and repeated currency interventions by Tokyo.

The main reason behind the yen’s weakness remains the significant interest rate gap between Japan and the US. As long as US rates remain substantially higher than Japanese rates, the dollar retains a structural advantage.

The market is also closely watching developments in the Middle East.

Investors expect the US and Iran to sign an agreement in Switzerland at the end of the week. If the deal is reached and leads to the reopening of the Strait of Hormuz, it could ease tensions in global markets and reduce demand for safe-haven assets, including the US dollar.

USD/JPY technical analysis

On the H4 chart, USDJPY has formed a consolidation range around 160.20. After breaking upwards, the pair is developing a growth wave structure towards 161.50. Today, we expect this target to be reached, followed by a decline towards 160.30. Technically, this scenario is confirmed by the MACD indicator: its signal line is above zero and pointing firmly upwards, reflecting potential for the continuation of the growth wave.

On the H1 chart, the market is forming a growth structure towards 160.51. After that, a correction towards 160.20 may be considered. The pair is then expected to rise towards 160.70, with the potential to continue the trend towards 161.50.

This scenario is supported by the Stochastic oscillator: its signal line is above 50 and moving firmly upwards towards 80, indicating that short-term upside potential remains intact.

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RoboForex Analysis Department

RoboForex

RoboForex Analysis Department provides timely market insights, expert technical analysis, and actionable forecasts across forex, commodities, indices, and equities.

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