USD/JPY. Analysis and Forecast

[Ben Graham]

The Japanese yen has strengthened for the second consecutive day, trading near its highest level since November 14 against a weakened U.S. dollar. The USD/JPY pair has fallen below the psychological 154.00 level, as markets price in the possibility of coordinated action by the United States and Japan to prevent further depreciation of the yen.

After Japan's Ministry of Finance and the Federal Reserve Bank of New York conducted checks on interest rates, Prime Minister Sanae Takaichi warned on Sunday that authorities are ready to counter speculative fluctuations. These comments reinforced expectations of potential intervention and set the tone for trading at the start of the new week.

On Monday, Chief Cabinet Secretary Seiji Kihara stated that any measures in the foreign exchange market would be taken within the framework of the joint U.S.–Japan statement, but declined to comment on reports of rate checks.

At Friday's meeting, the Bank of Japan, as expected, kept the short-term policy rate unchanged at 0.75% by an 8–1 vote, while simultaneously raising its inflation and economic forecasts and reaffirming its commitment to continue policy normalization. This stance contrasts with the dovish posture of the Federal Reserve and provides additional support for the yen.

Pressure on the dollar persists amid rising political risks. Statements by U.S. President Donald Trump regarding potential tariffs, along with tough rhetoric toward NATO allies, have strengthened the "Sell America" strategy, pushing the U.S. Dollar Index toward its September 2025 lows. The divergence in monetary policy—between the Bank of Japan's hawkish stance and the Fed's dovish approach—continues to favor the Japanese currency.

In the near term, traders should focus on the release of U.S. durable goods orders data and the FOMC meeting, which begins on Tuesday. The outcome of the meeting and the stance of Fed Chair Jerome Powell will determine the short-term direction of the dollar and the USD/JPY pair.

From a technical perspective, prices have broken below the 154.00 psychological level and the 100-day EMA, and are barely holding above support at the 100-day SMA. If prices fail to hold this support, it would be seen as a fresh bearish trigger for USD/JPY, accelerating a decline toward the 200-day SMA. If support holds, prices may attempt to recover above 154.00, with hopes of moving back above the 100-day EMA.

However, momentum has weakened. The MACD (Moving Average Convergence Divergence) indicator is drifting toward the zero line and continuing to decline, signaling growing bearish pressure. Meanwhile, the RSI (Relative Strength Index) is near oversold territory, suggesting that if buyers manage to defend the 100-day SMA, a rebound may occur. A daily close below this support level would open the door to a deeper correction, while stabilization above it would preserve the overall bullish structure.

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