The pair fell to 158.16 on Friday as the Japanese yen continued to recover since earlier this week. Market participants are increasingly focused on the upcoming Bank of Japan (BoJ) meeting, hoping to receive clearer signals on the future pace of interest rate hikes.
The regulator is widely expected to keep its policy parameters unchanged at the next meeting. However, investors are already pricing in the next rate hike to occur in June. Bank of Japan Governor Kazuo Ueda recently reiterated that the central bank remains willing to tighten policy if economic momentum and inflation dynamics continue to align with official forecasts.
Additional support for the yen came from renewed concerns about possible monetary intervention as USD/JPY approached the psychologically important level of 160. Japanese authorities have repeatedly warned against sharp and unilateral exchange rate movements, increasing market sensitivity in this area.
At the same time, political uncertainty continues to weigh on the yen. Markets are factoring in the possibility of early parliamentary elections. According to media reports, Prime Minister Sanae Takaichi could announce the dissolution of the lower house in an effort to push for a more active fiscal policy. More details are expected to be presented to representatives of the ruling coalition on January 19.
Technical analysis
On the H4 chart, USD/JPY has corrected to the 157.90 area. Today it is relevant to consider the possible formation of the initial phase of a renewed bullish structure, with a target at 159.59, with the prospect of a new movement towards 160.00.
This scenario is technically supported by the MACD indicator, whose signal line remains above the zero level and is heading sharply upwards, indicating that the bullish momentum remains despite the recent correction.
On the H1 chart, USD/JPY is forming a consolidation range around 158.77. Currently, the range has widened down to 157.97.
- A break below this level would likely trigger a drop towards 156.60.
- An upside break would pave the way for a bullish wave towards 159.59
This outlook is supported by the stochastic oscillator, whose signal line is positioned above the 50 level and is steadily moving up towards 80, indicating increasing bullish pressure.
Conclusion
USD/JPY remains at a critical juncture, balancing support for the yen from intervention risks and expectations of a Bank of Japan tightening with continued pressure from political uncertainty. In the short term, the consolidation is likely to persist, but a breakout of the current range will define the next directional move. As long as the pair holds above key support levels, the broader uptrend towards the 160 area will remain technically valid, while a break lower would shift the focus towards deeper corrective targets.
By RoboForex Analysis Department
Disclaimer: Any forecast contained herein is based on the author's personal opinion. This analysis cannot be considered trading advice. RoboForex assumes no responsibility for trading results based on the trading recommendations and reviews contained herein.
