The USD/JPY pair declined to 158.16 on Friday, reflecting the Japanese yen’s ongoing recovery from earlier in the week. Market participants are paying close attention to the forthcoming Bank of Japan meeting, anticipating more definitive indications about the trajectory of interest rate increases. The regulator is anticipated to maintain its policy parameters as they are at the upcoming meeting. However, market participants are already factoring in the next rate increase as soon as June. BoJ Governor Kazuo Ueda recently emphasized that the central bank is prepared to tighten policy should economic momentum and inflation dynamics continue to correspond with official forecasts.
Further backing for the yen emerged from heightened worries regarding potential currency intervention as USD/JPY neared the psychologically significant 160 mark. Japanese authorities have consistently cautioned about abrupt, one-sided fluctuations in exchange rates, heightening market sensitivity in this area. Simultaneously, political uncertainty persists as a burden on the yen. The potential for early parliamentary elections is being considered by the markets. Media reports indicate that Prime Minister Sanae Takaichi is likely to announce the dissolution of the lower house to advance a more proactive fiscal policy. Additional information is anticipated to be shared with representatives of the ruling coalition on 19 January.
On the H4 chart, USD/JPY has retraced to the 157.90 level. Today, it is pertinent to evaluate the possible emergence of the initial stage of a renewed upward trend, aiming for 159.59, with the potential for an additional advance towards 160.00. This scenario is technically supported by the MACD indicator, with its signal line positioned above the zero level and trending sharply upward, suggesting that bullish momentum persists despite the recent correction. On the H1 chart, USD/JPY is establishing a consolidation range near 158.77. The range has presently broadened to the downside, reaching 157.97. A breach beneath this level would probably initiate a drop towards 156.60. A breakout to the upside would pave the way for a bullish movement towards 159.59. This perspective is reinforced by the Stochastic Oscillator, with its signal line situated above the 50 level and steadily trending upward towards 80, suggesting an increase in bullish momentum.
USD/JPY is at a pivotal point, weighing the support from yen intervention risks and the anticipation of BoJ tightening against the persistent influence of political uncertainty. In the near term, it is probable that consolidation will continue; however, a breakout from the existing range will determine the subsequent directional shift. Provided the pair maintains its position above critical support levels, the overarching bullish trend targeting the 160 area continues to be technically sound. Conversely, a downside breakout would redirect attention towards more significant corrective targets.