USD/JPY Price Forecast: Holds onto gains near 159.50 following US Dollar’s footprints

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The USD/JPY pair trades sideways around 159.40 during the European trading session on Thursday. The pair seems to be following the footprints of the US Dollar (USD), which clings to the previous day’s high amid uncertainty surrounding the war in the Middle East.

USD/JPY clings to Wednesday’s gains near 159.50 while tracking the US Dollar.
The US Dollar remains on the front foot amid uncertainty surrounding Middle East conflicts.
The BoJ introduces a new inflation gauge, which will be published two days after nationwide CPI figures release.

At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades calmly around 99.65.

The outlook of the pair is expected to remain firm amid growing doubts about whether Iran would agree to a ceasefire with the United States (US). According to an Iranian state TV, a senior official stated that Tehran would end the war “when it decides to do so and when its own conditions are met”, and until then it would continue attacks across the region.

Also, conditions stated by Iran, which involve a toll system on the Strait of Hormuz and no interference in Tehran’s missile program, are unlikely to be approved by the US. A US official described Tehran’s demands as “ridiculous and unrealistic,” according to the Wall Street Journal (WSJ).

In Japan, the Bank of Japan (BoJ) releases a new inflation gauge, which strips out "institutional factors" such as any changes in the sales tax rate or energy-related subsidies, which will be published two days after the nationwide Consumer Price Index (CPI) figures are announced.

USD/JPY technical analysis

USD/JPY trades quietly around 159.40 as of writing. The near-term bias remains bullish as spot holds well above the rising 20-day Exponential Moving Average near 158.30, keeping the short-term trend pointed higher after the recent consolidation under the 160.00 area.

The 14-day Relative Strength Index (RSI) around 58 stays in positive territory without overbought conditions, indicating that upside momentum persists but has moderated from the late-July peak.

Initial resistance emerges near 159.75, the recent closing high, ahead of the 160.00 psychological barrier that guards a potential extension toward 160.50. On the downside, immediate support aligns with the 20-day EMA around 158.30, with a break exposing the March 19 low of 157.50 as the next key floor. A daily close below the latter would weaken the current bullish structure and open a deeper pullback toward 156.50.

(The technical analysis of this story was written with the help of an AI tool.)

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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