We saw the USD/JPY dip again this morning, but it has since bounced back after again finding good support at just below the 156.00 level. Alongside what looked like fairly sizeable dollar-selling from the Bank of Japan yesterday, you also had a decent push higher in equities, which only added to the softer tone in the dollar more broadly, while the dip in oil prices yesterday also clearly helped. That said, it’s hard to get too comfortable with the idea that the pullback in energy is here to stay. Tensions around Iran don’t look to be easing in any meaningful way, and the more hardline elements aren’t exactly signalling any willingness to step back. Against that backdrop, betting on a sustained drop in oil feels a bit premature. The dollar need not weaken much from here. If anything, a softer the ongoing situation in Strait of Hormuz should provide it support against currencies of economies that relay on energy imports. For that reason, intervention alone might not be enough to tip the USD/JPY forecast completely bearish.
Can USD/JPY bounce back?
As for USD/JPY, the intervention didn’t exactly come out of the blue. The warnings had been building for days, and once the pair pushed cleanly through 160—topping out around 160.70—it felt like a matter of time. The drop that followed had all the hallmarks of official action, and confirmation from Nikkei more or less sealed it.
The bigger question now is what comes next. Without meaningful tightening from the Bank of Japan, the underlying drivers haven’t really shifted. Rate differentials remain wide, and with oil prices staying firm, the dollar continues to find support. On that basis, the broader USD/JPY forecast and trend still leans higher.
The 160.00 level was always seen as a line in the sand, and that’s played out pretty neatly. What’s less clear is how aggressively Tokyo is prepared to defend it. Will they step in again on another test? And how much firepower are they willing to deploy? Markets won’t take this lying down—they’ll push that boundary again sooner or later.
Technical USD/JPY forecast and key levels to watch
Technically, the pair has found its feet for now, holding around the lower end of its longer-term bullish channel near 155.50–155.70. That bounce makes sense in the context of the broader trend.
If this latest move proves to be more of a warning shot than the start of a sustained intervention campaign, there’s a fair chance USD/JPY starts to edge higher again. For now, 160.00 remains the key battleground.
In terms of near-term resistance levels to watch, 156.66 was the prior low and it may not offer some resistance upon re-test from underneath. Above that, 159.00 is the next key level of potential resistance.
All told, I think the balance of risks are now tilted back to the upside unless the BoJ presses ahead with further rounds of dollar buying. Something I cannot rule out in this holiday-thinned trading sessions today and on Monday.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
