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The USD/JPY pair has entered a bullish consolidation phase and remains stable above the 163.00 level, close to the highest rate reached in 1986. However, traders are cautious due to speculation about potential intervention by Japanese authorities to support the national currency, which could hinder further price increases. Nonetheless, the favorable fundamental backdrop indicates the feasibility of continuing the recent stable upward trend.
Investors continue to pay close attention to the significant difference in interest rates between Japan and the US, which supports carry trades and is a key factor in the relative weakening of the Japanese yen. Additionally, economic risks related to ongoing conflicts in the Middle East are also negatively affecting the yen's performance.
The US dollar, on the other hand, maintains its recent gains over the past four days, providing additional support for the USD/JPY pair and further affirming a positive outlook.
The Bank of Japan cautiously began the normalization process of monetary policy, raising the short-term interest rate to 1.00% in June, the highest level since 1995. In turn, the US Federal Reserve is expected to maintain its target rate in the range of 3.50% to 3.75% at the upcoming monetary policy meeting in July. Nevertheless, this leaves a difference of 250-275 basis points, stimulating traders to utilize higher-yielding assets.
Meanwhile, the ongoing confrontation between the US and Iran creates geopolitical risks, which, along with the closure of the Strait of Hormuz, heighten uncertainty in global energy markets. As Japan relies on imports of crude oil through this critical waterway for more than 90%, these events raise concerns regarding the state of the Japanese economy and contribute to bearish sentiment regarding the yen. The inflation risk arising from rising energy prices also supports expectations of interest rate increases by the Fed, which bolsters the US dollar and the USD/JPY pair.
On Wednesday, no significant US economic data is expected to influence the market, so the US dollar will depend on comments from leading FOMC members. Additionally, further developments in the US-Iran situation may continue to bring volatility to financial markets, adding pressure to the dollar and momentum to the USD/JPY pair. Nevertheless, the aforementioned factors suggest that the path of least resistance for spot prices is upward.
From a technical perspective, the primary support for the pair is the 9-day EMA. A resistance level is seen at 163.23. Oscillators are positive, indicating that bulls hold an advantage.
The table below shows the percentage change of the Japanese yen against major currencies this week, with the yen demonstrating the most significant activity against the Canadian dollar.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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