USD/JPY in equilibrium as volatility rises

The USD/JPY pair held steady on Thursday, trading around 148.13 as the yen modestly recovered from the losses incurred in the previous session. The US dollar came under pressure following the release of softer US labour market data, which bolstered expectations of an impending Federal Reserve rate cut.

Domestically, Bank of Japan Governor Kazuo Ueda reiterated on Wednesday the central bank's commitment to a gradual pace of rate hikes, contingent on economic growth and inflation aligning with its projections.

Market participants now await further direction from the latest wage statistics, due for release on Friday.

Meanwhile, political uncertainty continues to weigh on the Japanese currency. The pair briefly touched a one-month low yesterday amid news that Hiroshi Moriyama, the ruling party's secretary-general and a key ally of Prime Minister Shigeru Ishiba, had resigned. Speculation has since intensified that Ishiba himself may step down. Among the potential successors is Sanae Takaichi, a noted proponent of maintaining ultra-low interest rates, a factor likely to keep the yen under pressure.

Technical analysis: USD/JPY

Four-hour chart

On the H4 chart, USD/JPY continues to develop a corrective wave within a defined ascending channel. The current move suggests a continuation of the correction towards the channel's lower boundary near 146.77. Upon completion of this pullback, the pair could form another leg higher, with an initial target at 149.00 and a further objective at 150.75. This outlook is technically supported by the MACD indicator. The histogram has begun to decline, while the signal line has crossed beyond the histogram and is turning lower.

One-hour chart

On the H1 chart, having tested the 149.00 level, the pair is now forming a corrective decline. The support level at 146.77 serves as the initial target for this pullback. This scenario is confirmed by the Stochastic oscillator. Its signal line is currently in the overbought zone above 80.0. A decisive break below the 80.0 level would signal a likely continuation of the corrective move.

Conclusion

USD/JPY is currently balancing between a dovish Fed and a cautious BoJ, amplified by domestic political risks. While the near-term bias is for a continued correction lower, the broader uptrend remains intact pending a break of key channel support. All eyes are on Friday's wage data for the next significant catalyst.