USD/JPY Price Forecast: Rises to 158.75-158.80 area; 200-EMA on H4 holds the key for bulls

USD/JPY regains positive traction as receding BoJ rate hike bets undermine the JPY.
Inflation fears bolster hawkish Fed expectations, supporting the USD and spot prices.
The broader technical setup favors bulls and backs the case for further appreciation.

Haresh Menghani FXStreet

The USD/JPY pair attracts some dip-buyers following the previous day's pullback of around 165 pips from the vicinity of its highest level since July 2024, and climbs to the 158.75-158.80 region during the Asian session on Tuesday.

The Japanese Yen (JPY) weakens in reaction to soft inflation figures, which showed that the National Consumer Price Index (CPI) fell below the Bank of Japan's (BoJ) 2% target and to its lowest level since March 2022. The data further dampens hopes for an immediate interest rate hike by the central bank amid concerns that the war-driven surge in energy prices could weaken Japan's economic growth.

Meanwhile, geopolitical uncertainties stemming from conflicts in the Middle East continue to fuel inflation fears, curbing bets for further interest rate cuts by the US Federal Reserve (Fed). This, in turn, triggers a fresh leg up in US Treasury bond yields, which, along with the risk of a further escalation of the Iran war, benefits the US Dollar's (USD) reserve currency status and supports the USD/JPY pair.

Spot prices once again showed some resilience below the 100-period Exponential Moving Average (EMA) on the 4-hour chart, and the subsequent move up favors bullish traders. That said, the Moving Average Convergence Divergence (MACD) line has slipped marginally below the signal line around the zero mark, with a flat histogram, suggesting fading upside momentum rather than a decisive shift in trend.

Moreover, the Relative Strength Index (RSI) near 48 stays close to its midline, reinforcing a consolidative tone within an overall upward context. Nevertheless, the near-term bias is mildly bullish as the USD/JPY pair holds above the 100-period EMA on the 4-hour chart, near 158.20, which keeps the broader uptrend structure intact.

In the meantime, initial support emerges at 158.20 from the 100-period EMA, followed by 157.65, where the latest downswing stalled. A break below 157.65 would expose deeper retracement levels toward the mid-157.00s. On the topside, immediate resistance stands at 159.30, aligned with recent intraday highs, with a break opening the way to 159.80 and the 160.00 psychological barrier.

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

USD/JPY 4-hour chart

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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