USD/JPY Price Forecast: Dollar remains capped below 162.40 resistance area

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The US Dollar (USD) appreciates against the Japanese Yen (JPY) for the fourth consecutive day on Wednesday, fuelled by the resumption of hostilities in the Middle East and dovish comments from Bank of Japan (BoJ) officials.

USD/JPY appreciates for the fourth consecutive day but is meeting resistance at 162.40.
A new round of US attacks on Iran has hurt risk appetite, providing moderate support to the USD.
Dovish comments from BoJ's Asada have added pressure on an already weak JPY.

A new round of US strikes on Iran, in retaliation for alleged attacks from Tehran on vessels closing Hormuz earlier this week, hurt risk appetite on Wednesday. and provided some support to the safe-haven US Dollar,

The Yen, however, is suffering from weakness of its own, as BoJ monetary committee member Toichiro Asada, the dovish dissenter at June’s monetary policy meeting, said that he needs to see signs of demand-driven inflation before supporting interest rate hikes,

Technical Analysis: 162.40 is the last barrier before 40-year highs

USD/JPY trades at 162.26, maintaining its positive structure intact although bulls have been rejected at Monday's high in the area around 162.40. Four-hour charts show the Relative Strength Index (14) easing toward neutral from prior overbought readings, while the Moving Average Convergence Divergence (MACD) remains slightly positive, hinting that upside momentum is still constructive.

On the topside, horizontal resistance at 162.41 (June 6 high) is closing the path towards the 40-year high at 162.85, followed by 162.84. On the downside, initial support appears at Tuesday's low, near 161.70, ahead of the key support area of 160.50, which held bears last week.

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

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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