USD/JPY Tests 158 as Japan Election Shock and BoJ Bets Put 160 in Play
USD/JPY is getting into a very tricky spot with market-moving news out of Japan tangling up with a weakening dollar...
Quick overview
- USD/JPY is facing volatility due to a weakening dollar and upcoming Bank of Japan policy decisions.
- The US dollar is under pressure from trade risks and geopolitical tensions, limiting USD/JPY's upward movement around 158.
- The Japanese yen is gaining support following a snap election call and proposed tax cuts, raising expectations for fiscal stimulus.
- USD/JPY is consolidating above key support levels, with traders advised to consider buying dips near 157.60.
USD/JPY is getting into a very tricky spot with market-moving news out of Japan tangling up with a weakening dollar and key technical lines. While the overall uptrend is still solid, momentum has backed off a bit, leaving the pair more vulnerable to big swings – especially with the Bank of Japan about to make a policy call.
Dollar takes a hit as trade risks and Fed rumblings come back to haunt.
The US dollar is feeling the heat again, and as a result, USD/JPY is being capped around 158. The US and EU are at it again over Greenland – that’s injecting some real uncertainty into the markets and putting pressure on the dollar. The Dollar Index is sagging towards 98.45 – that’s more to do with general dollar selling than any specific weakness in USD/JPY.
Treasury Secretary Scott Bessent tried to calm things down a bit by reasserting the US commitment to NATO & signalling that a new Federal Reserve Chair might be announced next week. Even so, traders just aren’t feeling confident enough to start dumping dollars again – at least not yet, anyway. That leaves USD/JPY looking exposed to a bit of a test on the downside.
Yen gets a boost after the election call, and tax cut plans are floated.
The Japanese yen has suddenly found some support after Prime Minister Sanae Takaichi called a snap election and promised to suspend the country’s consumption tax for a couple of years. That’s adding to expectations of some fiscal stimulus – and just as this is going on, markets are getting a bit more bullish on the yen despite it being a currency that’s been structurally weak against the likes of the higher-yielding currencies.
Takaichi has also confirmed that the House will be dissolved on January 23, which is just a few days before the Bank of Japan’s policy announcement. Markets are now very cautious, aware that even a slight shift in the BoJ’s stance on yields or inflation could trigger sharp moves in USD/JPY.
USD/JPY is consolidating above trend support just above 157.50
From a chart point of view, USD/JPY is trading at around 158.19 on the 2-hour chart and is still holding above that upward trendline that guided price action for most of January. The pair did peak at 159.37, but then came back a bit in a fairly orderly fashion and is now mainly consolidating above that support level down at 157.50 – 157.80.
A quick glance at the charts shows that the recent candlesticks are showing pretty small bodies and alternating wicks – that suggests things are pretty balanced, no one’s really trying to push the price down. And it’s still being held inside a fairly shallow upwards channel.
The 50 & 200 EMAs are still rising and are getting closer in on 157.50 – and that’s actually reinforcing that structural support. The pullback has stalled just below a 38.2% Fibonacci retracement, which is actually where the dip buyers have been stepping in to buy. The RSI reading of 53 is telling us that momentum is fairly neutral – but not showing any divergence.
Key levels to watch:
- Support: 157.80, then 157.50 and 156.80
- Resistance: 158.60, 159.37, then 160.00
Trade Idea: Buy a dip down near 157.60 – target 159.30 – stop just below 156.80.
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