USD/JPY Price Forecast: Retreats below mid-159.00s; bullish potential seems intact

• USD/JPY retreats from its highest level since July 2024, though the downside seems limited.
• The uncertainty over the timing of the next BoJ rate hike caps the JPY and supports the pair.
• The hawkish Fed favors the USD bulls and backs the case for the emergence of dip-buying.

The USD/JPY pair attracts some sellers on Thursday and erodes a part of the previous day’s strong move up to its highest level since July 2024. Spot prices, however, trim a part of modest intraday losses and trade just below the 159.50 area during the early European session. Meanwhile, the broader setup favors bulls and suggests that the path of least resistance for the pair remains to the upside.

The Bank of Japan (BoJ) decided to keep rates unchanged for the second consecutive meeting, citing risks from the Middle East conflict as a reason for caution. Furthermore, investors remain concerned that the war-driven surge in Crude Oil prices could weaken Japan's economic growth and rekindle inflationary pressures, create a classic stagflationary environment, and further complicate the BoJ's normalization efforts. This, in turn, fails to assist the Japanese Yen (JPY) in attracting any meaningful buyers and acts as a tailwind for the USD/JPY pair.

The US Dollar (USD), on the other hand, preserves the previous day's strong gains in the wake of the Federal Reserve's (Fed) hawkish outlook. In fact, the US central bank raised the year-end inflation outlook (PCE), citing risks from higher energy prices due to the Iran war. The Fed also upgraded its 2026 growth projection and projected only one rate reduction this year, and one in 2027. This, in turn, favours the USD and validates the near-term positive outlook for the USD/JPY pair as traders now look to the second-tier US economic data for a fresh impetus.

The near-term bias is mildly bullish as the USD/JPY pair holds comfortably above the rising 100-period Exponential Moving Average (EMA) on the 4-hour chart, keeping the broader uptrend intact within the ascending parallel channel whose lower boundary stands around 158.92. Momentum has improved after a brief loss of traction, with the Moving Average Convergence Divergence (MACD) indicator (12, 26, 9) turning back toward the zero line and the Relative Strength Index at 62.49, showing buyers regaining control but still away from overbought territory.

Initial resistance sits at the channel top near 160.79, where prior failures and the upper boundary converge to cap the upside. A clear break above this area would open the way toward the 161.50 region. On the downside, immediate support aligns with the lower channel boundary at 158.92, followed by stronger support around 158.00 at the 100-period EMA, where a break would weaken the bullish bias and expose 157.50 next.

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

USD/JPY 4-hour chart