The USD/JPY exchange rate dropped to a new monthly low of 154.78, forming a series of lower highs and lows as traders prepare for the Bank of Japan’s (BoJ) upcoming interest rate decision. This movement suggests potential shifts in the pair’s trajectory, reflecting market expectations of key policy announcements.
Yen Outlook: USD/JPY Trends Downward
USD/JPY has retraced gains from its December low of 148.65, falling out of January’s opening range. This downward trend may be driven by adjustments in the carry trade, as the Federal Reserve signals potential easing of restrictive policies. These shifts have added to downward pressure on the pair.
Market Anticipates BoJ Policy Changes
The BoJ is expected to announce a 25-basis-point rate hike in its first policy meeting of 2025, following its removal of the negative interest rate policy last year. Analysts suggest this normalization push is underpinned by expectations of sustained above-potential growth in Japan’s economy.
However, the recent drop in USD/JPY could be temporary if BoJ Governor Kazuo Ueda indicates no plans for an extended rate-hike cycle. Such signals may stabilize the pair, limiting further losses.
Technical Analysis: USD/JPY Key Levels
The pair’s recent low at 154.78 came after failing to surpass resistance at 156.50, tied to the 78.6% Fibonacci extension. A break below 153.80 (23.6% Fibonacci retracement) could open the door to deeper declines toward 151.95 (2022 high).
Key levels to watch:
- Support: 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension).
- Resistance: A move above 156.50 could target 158.88 (monthly high), with potential gains to 160.40 (1990 high) and 161.95 (2024 high).
Broader Market Context
This movement coincides with other major currency shifts, including USD/CAD reaching monthly highs and AUD/USD facing resistance near weekly highs. GBP/USD has seen a pullback, pushing its RSI into oversold territory, while USD/CHF has broken its bearish trend to stay above weekly lows.
As traders await the BoJ decision, USD/JPY remains a critical focus, balancing monetary policy signals and technical dynamics.
