The USD/JPY pair rose to 159.36 in the middle of the week, as the Japanese yen weakened for the second day in a row. The market is currently factoring in the Bank of Japan’s policy outlook in anticipation of next week’s meeting. The regulator is expected to maintain current rates as it assesses the economic implications of the conflict in the Middle East. Simultaneously, a signal indicating a return to policy normalization could materialize in June. A revision to forecasts is anticipated as well. Inflation data could see upward revisions as energy prices continue to climb, whereas economic growth projections might face downward adjustments in light of external risks.
On a favorable note, Japan’s exports have increased for the seventh straight month, bolstered by demand from China and ASEAN nations. Additional pressure on the yen is arising from a strengthening US dollar, following the breakdown of the second round of US-Iran negotiations, despite the formal extension of the ceasefire. On the H4 chart, USD/JPY established a consolidation range near the 159.02 level and subsequently advanced to 159.62. A decline to 159.02 appears probable, with a subsequent potential increase to 160.44. Following this, a decline towards 157.70 could occur, with a possible extension down to 156.00. This scenario is validated by the MACD indicator, which shows its signal line positioned above the zero level and trending decisively upwards, indicating the likelihood of a continued upward movement.
On the H1 chart, the market is developing the formation of a downward wave targeting 159.00. A potential upward movement towards 160.44 is feasible following this point. The situation is validated by the Stochastic oscillator, which shows its signal line positioned beneath the 50 level and decisively trending downward towards 20, suggesting that there is still short-term downside potential. The USD/JPY pair is on an upward trajectory as uncertainties surrounding the Bank of Japan’s policy stance exert pressure on the yen. The BoJ is anticipated to maintain its current rates at the upcoming meeting as it evaluates the effects of the Middle East conflict, suggesting that any indication of policy normalization might not emerge until June.
The adjustments to inflation forecasts being upward, coupled with the downward revisions to growth expectations, contribute to a multifaceted outlook. Stronger exports present a glimmer of positive news; however, the yen continues to face pressure from a strengthening dollar in the wake of the breakdown of US-Iran negotiations. From a technical perspective, additional movement towards 160.44 seems probable prior to any significant retracement, with the trajectory of the pair dependent on the signals from next week’s BoJ.