Yen ears end of corrective phase

Market sentiment remains highly sensitive to rhetoric from the Federal Reserve and statements from the White House. This is particularly true given the protracted government shutdown and the resurgence of trade disputes with several Asian partners.

While heightened geopolitical tensions in the region are bolstering demand for the yen as a safe-haven asset, the broader monetary policy divergence between the Fed and the Bank of Japan continues to favour the US dollar.

The greenback remains under pressure due to ongoing uncertainty from the shutdown and escalating "Trump trade wars." These factors are amplifying market volatility, prompting traders to lock in positions ahead of key inflation data and scheduled speeches from Fed officials.

Conversely, the Japanese yen is attracting moderate support from falling US Treasury yields and growing demand for safe-haven assets.

Technical analysis: USD/JPY

Four-hour chart

The USD/JPY pair has completed a corrective decline, finding a base at 149.75. We anticipate this correction is now concluding, paving the way for a growth wave with an initial target of 151.55 (testing it from below). Following this, a pullback towards 150.60 is plausible, potentially forming a local consolidation range. An upward breakout from this range would signal a continuation of the bullish momentum towards 154.10, which serves as the next local target. This outlook is technically confirmed by the MACD indicator, whose signal line is at lows below zero and appears to be reversing upwards, suggesting a new growth impulse is likely forming.

One-hour chart

The market concluded its downward wave at 149.75 and is currently consolidating at the range's lower boundary. We expect an initial growth wave to 151.55, to be followed by a potential correction to 150.60. The bullish scenario is further supported by the Stochastic oscillator; its signal lines are deep in the oversold territory (below 20) and are poised to rise towards 80, indicating significant recovery potential in the coming hours.

Conclusion

The technical picture suggests the yen's correction is finalising. While safe-haven flows provide underlying support, the dominant driver remains the significant monetary policy divergence, which is expected to ultimately favour the dollar. The immediate trajectory will be guided by the market's reaction to upcoming US data and Fed commentary.