USD/JPY climbed to 159.36 mid-week, with the Japanese yen losing ground for a second consecutive day. The market is pricing in the Bank of Japan’s policy outlook ahead of next week’s meeting.
The regulator is likely to keep rates unchanged while continuing to analyse the impact of the Middle East conflict on the economy. At the same time, a signal to return to policy normalisation may emerge in June.
A revision to forecasts is also expected. Inflation data may be revised upward amid rising energy prices, while economic growth forecasts may be revised downward due to external risks.
On the positive side, Japan’s exports grew for the seventh consecutive month, supported by demand from China and ASEAN countries.
Additional pressure on the yen is coming from a strengthening US dollar following the breakdown of the second round of US-Iran negotiations, although the ceasefire has been formally extended.
Technical Analysis
On the H4 chart, USD/JPY formed a consolidation range around the 159.02 level and broke higher to 159.62. A correction to 159.02 is likely, followed by a possible rise to 160.44. Subsequently, a move lower towards 157.70 may develop, with a potential extension to 156.00. Technically, this scenario is confirmed by the MACD indicator, with its signal line above the zero level and pointing firmly upwards, reflecting the potential for the upward move to continue.
On the H1 chart, the market is forming the structure of a downward wave to 159.00. A move higher towards 160.44 is possible thereafter. The scenario is confirmed by the Stochastic oscillator, with its signal line below the 50 level and pointing firmly downwards towards 20, indicating that short-term downside potential remains.
Conclusion
USD/JPY continues to push higher as market doubts over the Bank of Japan’s policy direction weigh on the yen. With the BoJ expected to hold rates steady at next week’s meeting while assessing the impact of the Middle East conflict, a potential signal for policy normalisation may not come until June. Upward revisions to inflation forecasts and downward revisions to growth expectations add to the complex outlook. While stronger exports provide some positive news, pressure on the yen persists from a firmer dollar following the breakdown of US-Iran talks. Technically, further upside towards 160.44 appears likely before any sustained pullback, with the pair’s direction hinging on next week’s BoJ signals.
