USD/JPY Pushes Toward 159 as Risk Relief Lifts Dollar and BoJ Caution Weighs on Yen

Summary:

The US dollar strengthened broadly as easing EU–US tensions revived risk appetite, leaving the yen vulnerable ahead of a closely watched Bank of Japan meeting, with USD/JPY pushing toward fresh upside levels as fundamentals and technicals align in favor of the greenback.

Buy USDJPY

EXP

Trading

158.600

ENTRY

159.500

TGT

158.000

158.416 +0.129 +0.08%

Point

Flat

158.000

CLOSING

158.600

ENTRY

159.500

TGT

The US dollar advanced across the board on Thursday, buoyed by an improvement in global risk sentiment after signs of de-escalation in long-running tensions between Washington and Brussels. A calmer geopolitical backdrop prompted investors to unwind parts of the so-called “Sell America” trade that had dominated positioning earlier in the month, allowing the greenback to regain traction against most major peers.

In the foreign exchange market, the shift was most visible in USD/JPY, which climbed to test one-week highs near 158.87. The pair rebounded decisively from the mid-157.00 area earlier in the week, underscoring renewed demand for the dollar at a time when the Japanese yen remains under persistent pressure from both political uncertainty at home and policy ambiguity at the Bank of Japan.

The yen has struggled to find support as the BoJ kicked off its two-day monetary policy meeting. In December, the central bank raised its benchmark interest rate by 25 basis points to 0.75%, marking its highest level in roughly three decades and signaling a cautious step away from ultra-loose policy. However, markets widely expect policymakers to keep rates unchanged at the conclusion of this meeting, reinforcing the perception that the BoJ is in no hurry to normalize policy further.

That perception has left the yen exposed, particularly as domestic political risks mount. Japanese Prime Minister Sanae Takaichi’s decision to call a snap election in early February has added a fresh layer of uncertainty. While the move could strengthen her parliamentary mandate, investors are increasingly wary that a stronger political position may embolden the government to pursue aggressive fiscal stimulus through higher spending and lower taxes. Such a path risks worsening Japan’s already fragile fiscal outlook and complicates the BoJ’s efforts to tighten policy in a controlled manner.

Against this backdrop, any ambiguity from BoJ Governor Kazuo Ueda regarding the future path of interest rates could weigh heavily on the yen. With inflation dynamics still uneven and wage growth not yet decisively entrenched, the central bank appears reluctant to commit to a clear tightening trajectory. In my view, this policy hesitation is a key reason why the yen remains “against the ropes,” as markets see little near-term catalyst for sustained appreciation.

Meanwhile, the US dollar is drawing support from a notable softening in rhetoric from President Donald Trump toward Europe. Speaking on the sidelines of the World Economic Forum in Davos, Trump ruled out the possibility of military action to annex Greenland and stepped back from threats of additional tariffs on European imports. The remarks triggered a relief rally in risk assets and reduced fears of an imminent escalation in transatlantic trade tensions, indirectly supporting the dollar through improved global growth expectations.

Attention now turns to key US macroeconomic data. Markets are focused on the release of the final reading of third-quarter US Gross Domestic Product and the Personal Consumption Expenditures (PCE) Price Index. GDP is expected to confirm solid economic growth, reinforcing the narrative of US economic resilience. At the same time, the PCE inflation gauge—the Federal Reserve’s preferred measure—is projected to remain well above the central bank’s 2% target.

If these expectations are met, the data could further underpin the greenback by strengthening the case for US interest rates to remain higher for longer. From a fundamental perspective, the contrast is stark: a US economy that continues to outperform peers versus a Japanese economy constrained by fiscal concerns and a cautious central bank. This divergence continues to tilt risks in favor of further USD/JPY upside.

Technical Analysis

From a technical standpoint, the picture also favors the bulls. USD/JPY extended its intraday gains by decisively breaking above the 158.75 resistance level, confirming the dominance of the short-term bullish trend. The pair is trading along a supportive ascending trendline and has successfully pushed above the 50-period exponential moving average (EMA50), a key development that suggests fading downside pressure. Momentum indicators, including the Relative Strength Index, are flashing positive signals, reinforcing the case for continued gains.

TRADE RECOMMENDATION

BUY USDJPY

ENTRY PRICE: 158.60

STOP LOSS: 158.00

TAKE PROFIT: 159.50

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Warren Takunda

Analysts

Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.

Rank

Articless

2039

Win Rate

63.22%

P/L Ratio

0.72

Focus on

XAUUSD, GBPUSD, EURUSD

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