USD/JPY Price Forecast: Bulls seize control as reduced BoJ rate hike bets weigh on JPY

The USD/JPY pair builds on the previous day's bounce from the 154.00 mark and gains strong follow-through positive traction on Tuesday. The intraday move up picks up pace during the first half of the European session and pushes spot prices to a two-week high, with bulls now looking to build on the strength beyond the 156.00 round figure.

The Japanese Yen (JPY) weakens across the board in reaction to reports that Japan's Prime Minister Sanae Takaichi conveyed her reservations about further interest rate hikes when she met with Bank of Japan (BoJ) Governor Kazuo Ueda last week. This comes on top of reduced bets for an additional BoJ rate hike any time soon and concerns about Japan's fiscal health. Apart from this, a slight improvement in the global risk sentiment weighs heavily on the safe-haven JPY and provides a strong boost to the USD/JPY pair amid a broadly firmer US Dollar (USD).

Following Monday's knee-jerk fall in reaction to US President Donald Trump's new global tariffs, the USD gains positive traction amid the Federal Reserve's (Fed) hawkish outlook. In fact, minutes from the January FOMC meeting showed that several Fed officials judged that additional easing may not be warranted until there was an indication that the progress of disinflation was back on track. Moreover, Fed Governor Christopher Waller said that he was open to keeping rates on hold in March if the upcoming jobs data indicates that the US labor market had pivoted to a more solid footing.

However, the CME Group's FedWatch Tool indicates that traders are still pricing in the possibility of three 25-basis-point (bps) rate cuts by the Fed this year. This marks a significant divergence in comparison to the growing acceptance that the BoJ will stick to its policy tightening path. Apart from this, speculations that Japanese authorities would step in to stem further weakness in the domestic currency might hold back the JPY bears from placing aggressive bets. Moreover, concerns about the economic fallout from Trump's trade policies might cap the USD and the USD/JPY pair.

Traders now look forward to the US economic docket, featuring the release of the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index. Apart from this, speeches from influential FOMC members would drive the USD demand, which, along with the broader risk sentiment, should provide some impetus to the USD/JPY pair.

USD/JPY 4-hour chart

Technical Analysis:

From a technical perspective, the strong move up lifts spot prices beyond the 50% Fibonacci retracement level of the recent pullback from the year-to-date high, touched in January. Moreover, the USD/JPY pair holds marginally above the 200-period Simple Moving Average (SMA) on the 4-hour chart, reflecting a still-soft broader trend and keeping near-term bids intact.

The Moving Average Convergence Divergence (MACD) histogram has flipped to positive, indicating the MACD line is above the Signal line, while the small reading near the zero line suggests momentum is only starting to improve. The Relative Strength Index stands at 64 (bullish), aligning with the upside bias.

Holding above the 200-period SMA would keep the path pointed higher as momentum firms, with the improving MACD backdrop and an RSI leaning toward the upper band supporting follow-through. A close below 155.82 would undermine the rebound and reintroduce consolidation risk, as momentum gauges would struggle to extend their nascent improvement.

(The technical analysis of this story was written with the help of an AI tool.)