USD/JPY Forecast: Yen fails to recover after BoJ decision

The trading week continues, and the Japanese yen’s lack of short-term strength is once again standing out. Recent USD/JPY price action shows the pair up slightly more than 0.2% over the last three trading sessions, suggesting that some buying pressure remains near recent highs.

This behavior is relevant because the Bank of Japan decision was released recently, alongside new updates around the Middle East conflict. Still, these developments have not been enough to trigger consistent demand for the yen. For now, a phase of indecision could remain important for USD/JPY over the coming sessions.

Bank of Japan decision released

During today’s session, the Bank of Japan announced its latest policy decision. In line with market expectations, the central bank raised interest rates by 0.25%, taking them from the previous 0.75% level to a new reference of 1.00%. This is Japan’s highest rate in several years and marks the institution’s first rate hike of 2026.

The bank justified the increase by pointing to persistent inflation pressures and the weakness the yen has shown over the past several months. Both factors remain important drivers behind a somewhat more restrictive stance in the short term.

Source: TradingEconomics

Despite the decision, the yen has not managed to attract enough demand. First, the rate increase had already been expected by markets for several weeks. Second, the central bank’s comments after the decision did not confirm that this hiking path will continue consistently over the coming months, as future moves will depend on inflation.

This was reflected in the moderate reaction of Japan’s 10-year bond market after the announcement. Although yields advanced more than 2.5% and remain slightly above 2.6%, they are still far from their 2026 highs. In addition, Japanese yields remain well below US yields, which are close to 4.5% on the 10-year curve.

Source: TradingEconomics

Against this backdrop, the latest rate hike still does not seem enough to close the gap with the United States. The Federal Reserve is also expected to announce its interest rate decision tomorrow, which could keep markets cautious toward yen demand.

For now, there is no clear confirmation that Japan will continue raising rates over the coming months. Unless markets start to expect a more aggressive Bank of Japan, the rate differential could continue to favor dollar-denominated assets. This would make it harder for the yen to recover consistently in the short term and could keep USD/JPY in a phase of indecision over the following sessions.

 

Are Middle East updates not enough?

Important updates around the Middle East were also released over the weekend. The United States and Iran reportedly reached a tentative agreement to ease the conflict in the short term and move toward a possible reopening of the Strait of Hormuz, which is expected this week.

However, markets still seem to view the agreement as tentative. If the Strait of Hormuz does not fully return to normal, accumulated demand for the US dollar as a liquidity safe haven may not disappear completely in the short term.

This can be seen in the behavior of DXY. Although the index has declined on average over the last few sessions, it remains close to the 100-point reference area. This suggests that the US dollar has not lost strength consistently against its main rivals, including the yen.

Source: TradingEconomics

The dollar is still trying to hold its strength across markets, and this may also be limiting the yen’s ability to gain consistent ground in the short term. Unless more relevant updates on the reopening of Hormuz clearly reduce safe-haven demand for the dollar, a phase of indecision could remain present in USD/JPY over the coming sessions.

 

Technical outlook for USD/JPY

Source: StoneX, Tradingview

• The uptrend remains dominant: For several months, the most important technical structure in USD/JPY has been a long-term bullish trendline. So far, the lack of relevant bearish corrections has kept this structure as the dominant technical pattern. If selling pressure fails to stabilize over the coming sessions, this uptrend could continue to remain relevant over the following weeks.
   

• RSI: At the moment, despite the recent neutrality, RSI continues to hold consistently above the neutral 50 level. This indicates that the average buying momentum remains relevant and that the bullish pressure seen in previous weeks has not fully disappeared, which could continue to influence medium-term price action.
   
• MACD: MACD, however, shows a different short-term picture, as the histogram remains quite close to the neutral 0 line. This indicates a balance in the average strength of short-term moving averages and suggests that a phase of indecision is gaining relevance on the chart.
   

Key levels:

• 161.493 – Key resistance: 2024 high that now stands as the most important upside barrier to watch. Price moves toward this level could bring back a relevant buying bias and extend the bullish trendline over the coming weeks.
   
• 160.224 – Near-term barrier: Recent neutral zone that coincides with an important psychological level. As long as price action does not move too far away from this level, a stronger phase of indecision could start to stand out, with the possibility of a short-term sideways range forming.
   
• 159.017 – Main support: Level that coincides with the barrier marked by the 50-period simple moving average. Strong moves below this point could begin to put the bullish trendline at risk and open the door to a dominant selling bias over the following weeks.
   

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25