On Monday it strengthened, approaching 155 per dollar, reaching its highest level in more than a week. This appreciation reflects increased investor anticipation ahead of the Bank of Japan's (BoJ) key monetary policy meeting on Friday.
Markets generally expect the central bank to increase its benchmark interest rate by 25 basis points, bringing it to 0.75%. However, the main focus will be on the progressive guidance provided by Governor Kazuo Ueda in his post-meeting remarks. Their comments will be analyzed for signals about the pace and extent of monetary tightening expected throughout 2025.
Analysts now project that the Bank of Japan's policy rate could reach 1.0% by July 2026. This hawkish outlook is supported by resilient domestic economic data, particularly consumer inflation, which remains stubbornly above the Bank of Japan's historical targets.
In particular, political resistance to tightening appears to be waning. Prime Minister Sanae Takaichi's administration is unlikely to oppose a rate increase as the yen's prolonged weakness – partly a consequence of delayed policy normalization – has exacerbated import costs and contributed to inflationary pressures.
Technical analysis: USD/JPY
H4 Chart:
On the H4 chart, USD/JPY has completed the first leg of a decline to 154.34, followed by a corrective bounce to 156.93. Now we anticipate a new wave of declines with a target at 154.73. After this, the pair is likely to form a consolidation range around this level. A subsequent break down from this range would indicate a continuation of the broader downtrend, opening the way towards 152.58. This bearish view is supported by the MACD indicator, whose signal line is below zero and points decisively downwards.
H1 Chart:
On the H1 chart, the pair is forming a descending wave with an immediate target at 154.82. Upon reaching this level, a bullish corrective movement is anticipated towards 155.45. A further extension of this correction to 155.91 cannot be ruled out. However, following this relief rally, we expect the main downtrend to resume, pushing the pair towards 153.52. The stochastic oscillator aligns with this short-term corrective view, as its signal line has risen from the 20 level and is rising towards 50, suggesting that a temporary bounce is likely before selling pressure recovers.
Conclusion
The yen is strengthening as markets position themselves for a historic rate hike from the Bank of Japan and a shift away from its long-held ultra-loose policy stance. Technically, USD/JPY shows a clear bearish structure on multiple time frames. While a short-term corrective bounce is possible, the overall trajectory points towards further weakness, with key bearish targets at 154.73 in H4 and 153.52 in H1. Governor Ueda's forecast on Friday will ultimately determine whether this technical correction evolves into a sustained trend reversal.
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.
