The USDJPY pair is close to an important resistance level as everyone looks ahead to decisions from the Bank of Japan (BoJ) and the Federal Open Market Committee (FOMC). The USD has gained back some strength, but there isn’t a clear reason for it, and the market is waiting for new factors to establish a lasting trend. The dominant strategy is to go “short US dollar,” which needs a significant event to fuel expectations for further rate cuts. Tokyo’s recent consumer price index (CPI) numbers were lower than expected, which did not help the JPY. A rate hike by the end of the year was already predicted after the US-Japan trade deal. For the JPY to gain more strength, we need either weak US data that supports dovish expectations for the Fed, or higher inflation in Japan that might lead to more rate hikes. Political changes, such as increased fiscal support, could also raise hopes for stronger economic activity and additional rate hikes.

Technical Analysis

In the daily chart, USDJPY is approaching the 148.30 resistance level. Sellers might sell around this point, aiming for a drop to the 142.35 support level, while buyers hope for a breakout to the 151.20 resistance. On the 4-hour chart, there’s minor support at 147.00, where buyers may step in, looking for a rally, while sellers may target a fall to 142.35. Looking at the 1-hour chart, an upward trendline supports bullish momentum. Buyers may depend on this trendline to reach new highs, while sellers are poised to break toward 147.00. Key upcoming factors include US economic data and the rate decisions from both the BoJ and FOMC, which could affect market movements. With major central bank meetings this week, derivatives markets indicate a near 100% chance that the Fed will maintain its interest rates. However, the CME FedWatch Tool shows over a 40% likelihood of a rate cut by March, making the upcoming statement crucial for market direction. This means traders should consider using options to protect against a unexpectedly hawkish tone, which could drive the USDJPY pair higher. On the Japanese side, recent core inflation figures dropped to 2.3% in December, suggesting a major policy change is not on the horizon. We believe this allows the central bank to wait, likely until spring wage talks, before ending its negative interest rate policy. As a result, buying short-dated call options could help traders who want to profit from potential disappointment for yen bulls this week.

Historical Interventions

As the currency pair tests upper levels, we should recall the Ministry of Finance’s verbal and actual interventions in late 2022 when the pair surpassed 150. This past suggests that even if we break the immediate resistance, there will likely be official warnings if we move toward the next major level. Traders might find it beneficial to sell call spreads above 150 to take advantage of this historically limited upside. The busy schedule of U.S. economic data, like job openings and the employment report, presents significant event risks. We expect volatility to spike leading up to these important releases, especially with the non-farm payrolls report on the horizon. A long straddle or strangle strategy could be a smart way to prepare for a possible large price movement in either direction, regardless of the results. We should also be aware of the positioning imbalance, which shows a significant speculative bet against the USD. Recent data from the Commodity Futures Trading Commission (CFTC) indicates that net short positions on the dollar are substantial, increasing the risk of a sharp rally if this week’s data or central bank tone surprises positively. This risk suggests that any bearish positions should be safeguarded with tight stop-losses or by purchasing out-of-the-money calls for protection. Create your live VT Markets account and start trading now.

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