- The USD/JPY currency pair experienced a significant decline towards the support level of 154.84 at the end of last week, before settling around 155.96.
- The pair was subject to selling pressure following the Bank of Japan's decision to raise interest rates to their highest level in nearly 20 years.
- The Japanese Yen has made a strong start to 2025, potentially reversing the dramatic slide of the previous year.
Historic Bank of Japan Announcement
The Bank of Japan recently raised interest rates to their highest level since the 2008 global financial crisis and revised inflation forecasts upward. The benchmark interest rate was raised by 25 basis points to 0.5%. This was the first interest rate increase since July. Kazuo Ueda, the Governor of the Bank of Japan, affirmed that monetary authorities will continue to raise rates amid higher-than-expected consumer price and wage inflation pressures. However, Ueda noted that the Bank of Japan is not on a predetermined path. He added, “We don’t have any predetermined idea. We will decide at each policy meeting by considering economic developments, prices and risks
Overall, Japan, the world’s fourth-largest economy, has suffered years of deflation and stagnant growth. With U.S. President Donald Trump’s tariffs likely to cast uncertainty over the global economy, Tokyo and others may have to respond.
For now, Ueda notes that there is no clear plan from the United States yet. “Various data shows that the U.S. economy is doing well. Meanwhile, Markets have been stabling as the general direction of Trump’s policies becomes clearer. There is very high uncertainty. Once there is more clarity, we will take that into account and reflect it in our policy decision,” Ueda said.
Following the Japanese rate hike, yields on Japanese government bonds rose, the yields on five- and 10-year bonds rose to 0.91% and 1.23%, respectively.
Top Forex Brokers
Trading Tips:
The recent gains of the Japanese yen will be on an important US date this week that may determine attempts to change the direction to a downside.
USD/JPY Technical Analysis and Expectations Today:
The USD/JPY currency pair may consolidate in its recent trajectory pending the market's reaction and investors' response to the US Federal Reserve's announcement this week. Especially, after Trump's indications that he prefers to lower US interest rates. Therefore, investors may compare the Bank of Japan's announcement with the US Federal Reserve's announcement this week to determine the direction of the US dollar against the Japanese yen.
Technically, Friday's decline pushed the USD/JPY currency pair slightly below the 100-hour moving average line. As a result, the currency pair avoided rising to the overbought levels of the 14-hour Relative Strength Index. In the short term, the bears will seek to extend the recent decline towards the support levels of 155.40 and 154.90 respectively. In the same time frame, the bulls will target the resistance levels of 156.20 and 156.80 respectively.
In the long term, according to the performance on the daily chart, the USD/JPY pair is trading within an ascending channel formation. However, the 14-day RSI has recently declined to avoid entering overbought levels. Therefore, the bears will target further movement towards lower levels, the closest of which is currently 154.20 and then the support 151.60 respectively. In the same time frame, the bulls’ most important targets will be the resistance levels of 158.50 and 161.00 respectively. Moreover, these are enough to push the technical indicators towards strong overbought levels. Decisively, the event increases with it the Japanese intervention in the forex markets to prevent further collapse of the Japanese yen exchange rate.
Want to trade our USD/JPY forex analysis and predictions? Here's a list of forex brokers in Japan to check out.