USD/JPY Price Forecast: US Dollar recovery is likely to be tested at 156.70 area

• USD/JPY returns above 156.00 after hitting one-month lows in the 155.30 area on Thursday.
• The Yen skyrocketed this week, as BoJ policymakers hinted at a steeper monetary tightening cycle.
• The US Dollar might need additional impulse to extend gains above a previous support area ahead of 160.70.

The Japanese Yen (JPY) is trimming some gains against the US Dollar (USD) on Friday, but still on track to its strongest weekly performance since July’s US-Japan coordinated intervention. The USD/JPY pair bounced from lows at the 155.30 area, returning to levels above 156.00, but upside traction remains weak, and previous support at the 156.70 area is likely to pose significant resistance.

Markets are still wondering about reasons for a 500-pip USD/JPY plunge between Wednesday and Thursday. Analysts at MUFG note that “it is not entirely clear whether the moves in USD/JPY were driven by FX intervention,” yet point out that “from what we do know, Bank of Japan current account data for Wednesday do not suggest the moves were driven by intervention.”

More broadly on the policy outlook, MUFG highlights that “BoJ Board Member Takata – one of BoJ’s most hawkish members – gave a speech earlier this week leaving the door open for an outsized interest rate increase as well as back-to-back hikes,” underscoring the risk that the central bank could contemplate a faster pace of tightening if conditions warrant.

Technical Analysis: US Dollar's recovery seems like a dead cat bounce

USD/JPY trades at 156.37, about 100 pips above Thursday's trough, with momentum indicators in the daily chart still well into bearish territory. The Relative Strength Index (RSI) is near 34, just above oversold levels, with the Moving Average Convergence Divergence (MACD) below zero, altogether suggesting that downside pressure remains in place.

Bulls would need to reclaim horizontal resistance at a previous support area around 156.70 (August 7 low). If that level gives way, the focus will shift to the area between the August 18 and 19 lows, around 158.05 and the 200-day SMA, at 158.50.

On the downside, the support area around 155.00 has held downside attempts several times since May. When key supports like this break, they tend to boost confidence for bears. In this case, pressure would increase towards the February 23 low, near 154.00, and the year-to-date lows around 152.20.

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