USD/JPY Price Forecast: Remains below 159.00 as bulls stay cautious amid softer USD demand

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The USD/JPY pair fails just ahead of the 159.00 mark during the Asian session on Thursday, stalling the previous day's modest recovery from sub-158.00 levels or a nearly three-week low.

USD/JPY attracts some buyers during the Asian session, though it lacks bullish conviction.
The Fed’s dovish outlook counters Middle East tensions, capping the USD and spot prices.
The mixed technical setup warrants some caution before placing aggressive directional bets.

The USD/JPY pair fails just ahead of the 159.00 mark during the Asian session on Thursday, stalling the previous day's modest recovery from sub-158.00 levels or a nearly three-week low. Spot prices, however, stick to modest intraday gains and currently trade near the 158.70-158.75 region, up around 0.10% for the day.

Despite a temporary US-Iran truce, escalation risks remain firmly on the table amid disruptions to shipping traffic through the Strait of Hormuz and accusations of ceasefire violations from multiple parties. This is seen as a key factor behind the US Dollar's (USD) relative outperformance against its Japanese counterpart and acts as a tailwind for the USD/JPY pair, though bulls seem hesitant amid the Federal Reserve's (Fed) dovish outlook.

From a technical perspective, the USD/JPY pair holds above the 158.25-158.20 horizontal support, which now coincides with the 200-period Exponential Moving Average (EMA), retaining a constructive near-term bias. Meanwhile, the Relative Strength Index (RSI) around 42 suggests momentum is stabilizing rather than deeply oversold. This leaves room for further recovery amid persistent uncertainties surrounding the Middle East conflict.

That said, the negative Moving Average Convergence Divergence (MACD) reading hints that any upside attempts could face fading momentum unless price accelerates decisively away from the 158.22 floor. A sustained break below the said support would weaken the current positive structure and expose a deeper correction.

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

USD/JPY 4-hour chart

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.