Key Moments

Asian Session Trade: Gains Limited Below 159.00

The USD/JPY pair draws some buying interest in Asian trading on Thursday but lacks strong upside follow-through. The move stalls just shy of the 159.00 level, halting a modest rebound from below 158.00 that marked a nearly three-week low in the prior session. Even so, spot prices remain slightly higher intraday, hovering around the 158.70-158.75 band and showing an advance of roughly 0.10% on the day.

Geopolitical Tensions Offset by Dovish Fed Tone

Market participants continue to monitor developments in the Middle East, where a temporary US-Iran truce has not removed the risk of renewed escalation. Ongoing disruptions to shipping traffic through the Strait of Hormuz and allegations of ceasefire violations from several sides are viewed as supporting the US Dollar against the Japanese Yen, offering a tailwind to USD/JPY.

However, the Federal Reserve’s more dovish policy outlook works to cap broader USD strength and tempers the upside in the pair. This combination leaves bulls cautious despite the geopolitical backdrop, limiting the ability of USD/JPY to break convincingly above the 159.00 threshold.

Technical Picture: Key Support and Momentum Signals

On the technical front, USD/JPY continues to trade above a horizontal support zone at 158.25-158.20. This area now aligns with the 200-period Exponential Moving Average, helping to maintain a slightly positive near-term structure.

The Relative Strength Index sits around 42, indicating that selling pressure has eased and momentum is stabilizing rather than moving into deeply oversold territory. This configuration leaves scope for additional recovery, particularly while uncertainty surrounding the Middle East persists.

At the same time, the Moving Average Convergence Divergence indicator remains in negative territory, signaling that any attempts to push higher could lose strength unless the pair accelerates decisively away from the 158.22 area. A firm break below the 158.25-158.20 floor would undermine the current constructive bias and open the door to a more pronounced downside move.

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

Key USD/JPY Technical Levels (4-Hour Chart)

Bank of Japan: Policy Backdrop for the Yen

Mandate and Policy Framework

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

The BoJ launched an ultra-loose policy stance in 2013 to support economic activity and push inflation higher in a low-inflation environment. This approach centers on Quantitative and Qualitative Easing, under which the bank creates money to purchase assets such as government and corporate bonds in order to inject liquidity into the financial system.

In 2016, the BoJ further eased conditions by introducing negative interest rates and taking direct control of the yield on 10-year Japanese government bonds. In March 2024, the central bank raised interest rates, marking a move away from its earlier ultra-loose stance.

Impact on the Japanese Yen

The BoJ’s extensive stimulus contributed to a depreciation of the Japanese Yen against major peers. This weakness intensified in 2022 and 2023 as the policy gap between the BoJ and other major central banks widened, with many of those institutions sharply increasing interest rates to combat elevated inflation. The resulting interest rate differential weighed on the Yen’s value.

In 2024, that trend partially reversed after the BoJ shifted away from its ultra-loose framework. The earlier decline in the Yen, combined with higher global energy prices, had helped push Japanese inflation above the central bank’s 2% objective. Expectations for rising wages, seen as a driver of sustained inflation, also played a role in the BoJ’s decision to start unwinding its earlier policy stance.