USD/JPY stalls near one-year high

The USD/JPY pair paused on Monday after a sharp rally to around 157.95, with the yen holding near its lowest levels of the year. Trading activity was subdued as Japanese markets were closed for a public holiday.

Political uncertainty increased after Prime Minister Sanae Takaichi, a key coalition partner, raised the possibility of early elections on 8 or 15 February, adding another layer of caution to the market.

The yen also faced pressure from recent mixed macroeconomic data, which have clouded the outlook for the Bank of Japan’s future rate-hike trajectory.

Last week, BoJ Governor Kazuo Ueda reiterated that the central bank would continue to raise interest rates if economic momentum and inflation align with forecasts, while also emphasising a flexible approach to policy adjustments.

Over the coming week, traders will focus on a series of key Japanese economic indicators, including current account figures, machine tool orders, manufacturing PMI, and business sentiment data. Any surprises could prompt a shift in the yen’s direction.

Technical analysis: USD/JPY

Four-hour chart

On the H4 chart, the pair has completed a local advance to 157.77 and is likely to enter a period of consolidation around this level. A break below this range could trigger a corrective move towards 156.60. Conversely, an upward break would open the potential for the rally to extend towards 159.33. This outlook is supported by the MACD indicator, with its signal line positioned above zero and pointing firmly upward, indicating ongoing bullish momentum.

One-hour chart

On the H1 chart, the market is forming a consolidation range centred around 157.77, with interim boundaries at 158.18 to the upside and 157.50 to the downside. A downward exit from this range could see a decline towards 156.60, while an upward resolution would signal potential for a further move towards 159.33. The Stochastic oscillator aligns with this view, as its signal line is above 50 and rising towards 80, suggesting continued near-term upward momentum.

Conclusion

USD/JPY has entered a period of consolidation near annual highs, with direction likely to be determined by upcoming Japanese data and political developments. While the broader technical bias remains bullish, a break below 157.50 could signal the start of a short-term correction.