USD/JPY rises as markets brace for the Bank of Japan meeting

USD/JPY rose to 154.87 on Tuesday, with the Japanese yen weakening for a second consecutive session. Pressure on the yen has intensified as the US dollar strengthens ahead of an expected Federal Reserve rate increase this week.

Higher oil prices remain an additional negative factor for the yen. Rising energy costs increase Japan’s import bill, placing further pressure on an economy that remains heavily dependent on imported energy.

That said, the yen is still trading close to seven-month highs. It continues to receive support from expectations of more aggressive monetary tightening by the Bank of Japan, the unwinding of carry trades and signs of increased capital repatriation by Japanese investors.

The Bank of Japan is expected to raise its policy rate to 1.25% on Friday, which would be the highest level since April 1995, amid growing inflation risks. Markets will also be watching closely for signals from the central bank about the possibility of another rate increase before the end of the year.

USD/JPY technical analysis

On the H4 USD/JPY chart, the market formed a consolidation range around 154.13. The range has since expanded downwards to 153.23 and upwards to 154.95.

An upside breakout from this range could open the way for a further rise towards 155.05. A downside breakout, however, would increase the likelihood of a decline towards 152.40.

The MACD indicator supports the short-term upside scenario. Its signal line remains below zero but is pointing sharply upwards, indicating strengthening bullish momentum.

On the H1 USD/JPY chart, the market completed an upward move towards 154.95, followed by a correction to 153.98. A new upward move is currently developing towards 155.05.

Once this move is complete, the main scenario envisages a reversal lower towards 153.70, with the decline potentially extending towards 152.40.

The Stochastic oscillator supports the subsequent bearish scenario. Its signal line remains below 80 and appears poised to turn lower towards 20.

USD/JPY outlook

USD/JPY retains short-term upside potential towards 155.05 as the dollar remains supported ahead of the Federal Reserve meeting.

However, the broader technical scenario points to a possible reversal once this target is reached. A decline towards 153.70 would then become the first downside target, with 152.40 emerging as the next target if bearish momentum strengthens.