Yen Weakens as Demand for the US Dollar Returns

USD/JPY held near 157.22 on Tuesday following a volatile start to the week. Pressure on the Japanese yen has increased as demand for the US dollar has returned, with investors once again favouring the greenback as a defensive asset. The move comes amid renewed tensions in the Middle East, which threaten the fragile truce between the US and Iran.

The renewed escalation around the Strait of Hormuz has pushed energy prices higher and reignited inflation concerns. In turn, this has supported the US dollar by increasing expectations that the Federal Reserve may need to maintain a tighter monetary stance for longer.

At the same time, markets remain cautious following Japan’s suspected currency intervention last week, which triggered a sharp rebound in the yen. Market estimates suggest Tokyo may have spent as much as USD 35 billion, although the authorities have yet to confirm any direct action.

Investors continue to price in the risk of further intervention. Japan has historically preferred to act during periods of thinner liquidity and has often intervened in waves, helping to sustain elevated volatility across the foreign exchange market.

Technical Analysis

On the H4 chart, USD/JPY is trading within a consolidation range around 156.50 and is now moving towards 157.60. This level remains the immediate upside target. Once reached, a corrective move lower may begin, with scope for a decline towards 153.80 and potentially 153.00 thereafter. The MACD supports this scenario, with its signal line below zero but pointing firmly upwards, indicating that bullish momentum is still building in the short term before a broader correction may emerge.

On the H1 chart, the market is attempting a breakout above 157.26. A further push higher towards 157.60 is likely in the near term. After that, a pullback towards 155.77 may follow, with the potential for the decline to extend to 153.80. The Stochastic oscillator supports this view, with its signal line above 80, indicating overbought conditions and suggesting that short-term downside pressure may begin to build once the current upward move fades.

Conclusion

USD/JPY remains supported by renewed demand for the US dollar amid heightened geopolitical tensions and inflation concerns, strengthening the greenback’s defensive appeal. However, the risk of renewed intervention from Japan continues to cap upside potential, leaving the pair vulnerable to sharp reversals despite the near-term bullish bias.

By RoboForex Analytical Department

Disclaimer:

Any forecasts contained herein are based on the author's particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.