USDJPY drops beneath the significant 160.00 level as verbal intervention escalates

Market Fundamentals Overview

US Dollar (USD)

As the weekend approached, the US dollar gained strength across various currencies, driven by traders seeking protection against the risk of a potential ground conflict. However, as the new week begins, the dollar is showing some softness as those protective positions are being reversed.

Attention remains firmly on the ongoing discussions between the US and Iran. There is a sense of cautious optimism, with Pakistan announcing that talks may soon be held in Islamabad. Additionally, Trump has expressed confidence in the progress, suggesting a deal could be reached soon, though he also acknowledged the possibility of failure.

The US dollar continues to find support, with upward momentum likely to persist. Market participants are closely monitoring news developments, particularly updates from Trump’s Truth Social account, as a single post could trigger significant market volatility.

Currently, traders are not anticipating any major changes to interest rates this year, with only a minimal 5 basis points of tightening expected by the end of the year.

Japanese Yen (JPY)

The outlook for the Japanese yen remains largely unchanged. Ongoing concerns about inflation and geopolitical tensions continue to put pressure on the currency. The most recent Japanese CPI data revealed that core inflation has dropped well below the Bank of Japan’s 2% target.

Last week, the Bank of Japan announced plans to start releasing monthly data on the estimated core consumer price inflation. However, even these projections do not suggest any immediate policy changes.

On the wage front, the initial results from spring wage negotiations indicate that Japan is on track for a third consecutive year of average wage increases above 5%. This trend supports a tightening stance, but the central bank may prefer to wait until the US-Iran conflict subsides before taking further action, to avoid heightening concerns about economic growth.

During the Asia-Pacific trading session, verbal intervention provided some relief for the yen. Markets are currently pricing in a 61% probability of a rate hike at the next meeting, with expectations of a total of 50 basis points of tightening by year-end.

USDJPY Technical Analysis – Daily Chart

The daily chart shows that USDJPY briefly moved above the 160.00 level but failed to maintain the breakout, resulting in a pullback. Buyers may find a more favorable risk-reward opportunity near the 157.65 support, aiming for a potential rally toward 161.95. Conversely, sellers will be watching for a break below this support, which could signal a deeper correction toward the 154.00 area.

USDJPY Technical Analysis – 4-Hour Chart

On the 4-hour timeframe, a minor upward trendline is supporting the bullish trend, aligning with the previously breached resistance near 159.60. Buyers are likely to defend this area, setting stops below the trendline as they target new highs. Sellers, meanwhile, may wait for a breakdown to initiate positions targeting the 157.65 support level.

USDJPY Technical Analysis – 1-Hour Chart

The 1-hour chart offers limited new insights. Buyers may look for a rebound at current levels, while sellers are watching for a breakdown. The red lines on the chart indicate the average daily range for today.

Key Events Ahead

• Today: Federal Reserve Chair Powell delivers remarks.
• Tomorrow: Tokyo CPI, US Consumer Confidence, and US Job Openings data are released.
• Wednesday: US ADP employment report, US Retail Sales, and US ISM Manufacturing PMI are due.
• Thursday: The latest US Jobless Claims figures will be published.
• Friday: The week concludes with the US Non-Farm Payrolls (NFP) report.