The pair paused on Monday after a strong rally to around 157.95, with the yen holding near its lowest levels of the year. Trading activity was subdued as Japanese markets were closed for a holiday.
Political uncertainty increased after Prime Minister Sanae Takaichi, a key coalition partner, raised the possibility of early elections on February 8 or 15, adding another layer of caution to the market.
The yen also faced pressure from recent mixed macroeconomic data, which has clouded the outlook for the Bank of Japan's future rate hike path.
Last week, Bank of Japan Governor Kazuo Ueda reiterated that the central bank would continue to raise interest rates if economic momentum and inflation align with forecasts, while emphasizing a flexible approach to policy adjustments.
Over the next week, traders will focus on a number of key Japanese economic indicators, including current account figures, machine tool orders and business sentiment data. Any surprise could cause a reversal in the direction of the yen.
Technical analysis: USD/JPY
H4 Chart:
On the H4 chart, the pair has completed a local advance to 157.77 and is likely to enter a period of consolidation around this level. A break below this range could trigger a corrective move towards 156.60. On the contrary, a bullish breakout would open the possibility of the rally extending towards 159.33. This outlook is supported by the MACD indicator, with its signal line positioned above zero and pointing firmly upward, indicating continued bullish momentum.
H1 Chart:
On the H1 chart, the market is forming a consolidation range centered at 157.77, with provisional limits at 158.18 on the upside and 157.50 on the downside. A downside breakout from this range could trigger a drop towards 156.60, while a bullish resolution would signal the possibility of a new move towards 159.33. The stochastic oscillator aligns with this view as its signal line is above 50 and rising towards 80, suggesting continued bullish momentum in the near term.
Conclusion
USD/JPY has entered a period of consolidation near yearly highs, and the direction will likely be determined by upcoming Japanese data and political developments. While the broader technical bias remains bullish, a break below 157.50 could signal the start of a short-term correction.
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.
