USD/JPY Price Forecast: Needs breakout above 160.70 for fresh leg of rally

USD/JPY edges down to near 160.70 while the Japanese Yen outperforms.
The BoJ hikes interest rates by 25 bps to 1%, as expected.
BoJ’s Uchida remains committed to tightening monetary conditions further.

Sagar Dua FXStreet

The USD/JPY pair ticks down to near 160.25 during the European trading session on Tuesday. The pair trades marginally lower as the Japanese Yen (JPY) outperforms its peers, following the Bank of Japan’s (BoJ) monetary policy announcement.

In the policy meeting, the BoJ raised interest rates by 25 basis points (bps) to 1%, as expected, and guided that the monetary policy path will remain upwards, with inflation expected to remain above target.

“Will continue to raise policy rate in response to developments in economic activity, prices, financial conditions,” BoJ Deputy Governor Shinichi Uchida said, adding, “Risk of significant economic slowdown appears to have decreased compared with a while ago.”

Meanwhile, the US Dollar (USD) is expected to trade highly volatile, with investors awaiting the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. In the policy meeting, the Fed is expected to leave interest rates unchanged in the 3.50%-3.75% for the fourth meeting in a row.

Investors will pay close attention to new Fed Chairman Kevin Warsh’s remarks regarding the central bank’s monetary policy outlook.

USD/JPY technical analysis

USD/JPY trades at around 160.34, holding a bullish near-term bias as spot remains above the 20-day exponential moving average (EMA) at 159.77, keeping the recent uptrend intact despite signs of consolidation near cycle highs.

The Relative Strength Index (RSI) at 60.42 stays in positive territory but short of overbought conditions, hinting that upside momentum persists but is no longer in an aggressive phase.

On the downside, immediate support is seen at the 20-day EMA at 159.77. reinforcing a broader demand zone on minor pullbacks. A daily close below the EMA would suggest a deeper correction towards the May 20 low at 158.60. Looking up, the pair could advance to 161.00 if it breaks above the April 30 high at 160.73.

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

Economic Indicator

BoJ Interest Rate Decision

The Bank of Japan (BoJ) announces its interest rate decision after each of the Bank’s eight scheduled annual meetings. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and raises interest rates it is bullish for the Japanese Yen (JPY). Likewise, if the BoJ has a dovish view on the Japanese economy and keeps interest rates unchanged, or cuts them, it is usually bearish for JPY.

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