13.01.202512:36 Forex Analysis & Reviews: USD/JPY: Analysis and Forecast

Today, the Japanese yen is making every effort to maintain its two-day growth against the US dollar. However, its strength is waning due to uncertainties surrounding the Bank of Japan's potential decisions on interest rate hikes. Rising inflationary pressure in Japan increases the likelihood of a rate hike in January or March, but some investors believe the Bank of Japan might wait until April to confirm strong wage growth, which could influence spring negotiations. This cautious approach holds back yen bulls from taking more aggressive action.

Additionally, the recent widening of the yield gap between US and Japanese government bonds, fueled by hawkish expectations for the Federal Reserve, negatively impacts the strength of the yen. At the same time, the growing perception that the Fed might pause its rate reduction cycle by the end of this month keeps the US dollar at its highest levels in the past two years, providing support for the USD/JPY pair. However, a general risk-off sentiment, reflected in weaker stock market performance, continues to sustain demand for the traditionally safe Japanese yen.

The Friday low near 157.20 serves as immediate support ahead of the psychological level of 157.00 and the support zone at 156.75. Any further weakness could be seen as an opportunity to buy near last week's swing low in the 156.20 level. This could help limit the pair's decline to the 156.00 level. A decisive break below 156.00 would shift the short-term bias in favor of the bears, paving the way for deeper losses.

On the other hand, the Asian session high around the round figure of 158.00 serves as the immediate resistance, followed by the 158.45 level and the multi-month high reached on Friday near 158.85. Further buying beyond the 159.00 level would act as a fresh trigger for bulls, pushing the USD/JPY pair toward the next significant hurdle at the psychological level of 160.00.