USD/JPY pulls back from weekly highs as Yen steadies near 157.00

The Japanese Yen recovered marginally on Wednesday after safe-haven Dollar demand paused, but Middle East tensions keep the broader bid intact.
Japan's energy import reliance and the effective closure of the Strait of Hormuz following US-Israeli strikes on Iran continue to weigh on the Yen, with Finance Minister Katayama warning that authorities are monitoring the currency decline.
US ADP payrolls topped expectations at 63K and ISM Services PMI beat at 56.1; NFP and Retail Sales on Friday are the only remaining high-impact releases on this week's US-heavy economic calendar.

Joshua Gibson FXStreet

USD/JPY slipped 0.42% on Wednesday, pulling back to around 157.00 after pushing close to 157.90 earlier in the session. The pair has been chopping in a wide range between about 152.00 and 159.00 since late January, with alternating large-bodied bullish and bearish candles pointing to a tug-of-war between opposing forces. Despite Wednesday's pullback, the past week of market action shows broad US Dollar (USD) strength, with the Greenback gaining against most major currencies amid heavy safe-haven flows.

The escalating conflict in the Middle East remains the dominant driver; US and Israeli strikes on Iran over the weekend resulted in the effective closure of the Strait of Hormuz, sending Crude Oil prices sharply higher and putting particular pressure on the Japanese Yen (JPY) given Japan's heavy reliance on energy imports. The Bank of Japan (BoJ) is holding rates at 0.75%, and market volatility triggered by the conflict has raised the chance the BoJ will hold off on hiking in March.

With no Japanese data of note remaining this week, attention turns to Friday's US Nonfarm Payrolls (NFP) and Retail Sales figures, which will shape expectations for the Federal Reserve's (Fed) next move.

USD/JPY daily chart

Technical Analysis

In the daily chart, USD/JPY trades at 157.07. The near-term bias is mildly bullish as price holds comfortably above the rising 50-day EMA clustered well above the 200-day EMA, preserving the broader uptrend despite the recent pullback from the 158.40 area. Momentum has improved, with the Stochastic lifting into overbought territory near 85, indicating persistent upside pressure rather than exhaustion at this stage. The sequence of higher closes since last week reinforces buyers’ control while the medium-term trend structure remains intact.

Initial resistance emerges around 157.70, where last week’s highs capped advances, followed by the 158.40 zone that marked the recent peak. A daily close above 158.40 would open the way toward the 160.00 psychological barrier. On the downside, immediate support aligns near 156.00, just above the 50-day EMA, with stronger demand anticipated around 155.30, where prior consolidation and the moving average zone converge. A break below 155.30 would weaken the bullish bias and expose the next support near 153.00, although current technicals favor dips being absorbed before that area.

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

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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