USD/JPY Stays Below 160 as Intervention Risks Loom

Key Moments

Range-Bound Trade Below 160 Amid Conflicting Drivers

The USD/JPY pair drew fresh selling interest on Tuesday after a modest lift during Asian trading that carried prices to the 160.00 area, but the move stalled as the session progressed. The pair is holding above the prior day’s swing low and is last changing hands near the 159.70-159.75 band, effectively unchanged on the day as market participants grapple with mixed fundamental signals.

Concerns about the economic fallout from the Iran war continue to form part of the backdrop. At the same time, softer Tokyo consumer inflation data have reduced expectations for an immediate policy tightening move by the Bank of Japan (BoJ). That softer inflation profile is weighing on the Japanese Yen (JPY) and is broadly supportive of the USD/JPY pair.

However, prospects for easing tensions in the Middle East are exerting downward pressure on the US Dollar (USD), limiting upside in the pair. In addition, persistent worries about potential JPY-supportive intervention are discouraging aggressive dollar buying and are keeping spot levels capped below the 160.00 psychological threshold.

Technical Picture: Uptrend Intact, Momentum Pausing

From a chart perspective, the short-term bias remains cautiously constructive. USD/JPY is trading comfortably above its rising 200-day Exponential Moving Average (EMA), a configuration that continues to support the broader uptrend despite the recent stall around the 160.00 mark. The absence of meaningful follow-through selling after the latest pullback also favors the bullish camp and indicates that the path of least resistance is still tilted to the upside.

The Moving Average Convergence Divergence (MACD) indicator has flattened around the zero line after previously losing upside momentum. This behavior points more to waning bullish strength than to a definitive trend reversal. In parallel, the Relative Strength Index (RSI) is hovering near 59, which keeps it in positive territory without signaling overbought conditions. Together, these indicators reinforce a constructive view and support strategies that look to buy into dips while the market digests recent gains.

Key Technical Levels for USD/JPY

If buying interest strengthens again, the technical setup favors another challenge of 160.30, the recent swing high. A break above that level would turn attention to the next resistance around 161.00, where a successful clearance could pave the way for a move toward new cycle peaks.

On the downside, the first area of support is located near 159.00. Below there, a more robust floor is seen around 158.40, which has contained prior corrective moves. A daily close beneath 158.40 would shift focus to 157.70 as the next notable downside target for the pair.

Bank of Japan: Policy Framework and Impact on JPY

What Is the Bank of Japan?

The Bank of Japan (BoJ) is Japan’s central bank and is responsible for setting the country’s monetary policy. Its mandate includes issuing banknotes and conducting currency and monetary control with the objective of maintaining price stability, defined as an inflation target of around 2%.

BoJ’s Policy Stance

The BoJ initiated an ultra-loose monetary policy in 2013 to support economic activity and drive inflation higher in a low-inflation environment. The central bank’s approach has relied on Quantitative and Qualitative Easing (QQE), which involves creating money to purchase assets such as government and corporate bonds in order to inject liquidity into the financial system.

In 2016, the BoJ intensified this accommodative stance, first by introducing negative interest rates and then by directly managing the yield on its 10-year government bonds. In March 2024, the BoJ raised interest rates, effectively stepping back from its ultra-loose policy framework.

How BoJ Decisions Affect the Japanese Yen

The BoJ’s extensive stimulus measures contributed to a depreciation of the Japanese Yen against major currencies. This trend accelerated in 2022 and 2023 as major central banks elsewhere sharply increased interest rates to tackle elevated inflation, widening the policy gap with the BoJ and further pressuring the Yen.

That pattern has partially reversed in 2024 following the BoJ’s decision to move away from its ultra-loose stance, narrowing the policy divergence that had weighed on the currency.

Why the BoJ Began Unwinding Ultra-Loose Policy

A weaker Yen combined with rising global energy prices pushed Japanese inflation above the BoJ’s 2% target. Expectations for stronger wage growth in Japan – a critical driver of sustained inflation – also played a role in the central bank’s decision to start normalizing policy.