USD/JPY Forecast: Retreats from one-month high but dip-buying eyed

The USD/JPY pair retreats from the 160.20 area, or a one-month high retested earlier this Monday, and, for now, seems to have snapped a five-day winning streak. Spot prices slide to the 159.80-159.75 region during the Asian session, though the downside potential seems limited.

A modest US Dollar (USD) downtick is seen as a key factor exerting some downward pressure on the USD/JPY pair amid rising bets for faster interest rate hikes by the Bank of Japan (BoJ). However, expectations that the US Federal Reserve (Fed) will raise borrowing costs next month, along with escalating US-Iran tensions, might hold back USD bears from placing aggressive bets.

Furthermore, the wide US-Japan interest rate gap, along with concerns about Japan's worsening fiscal condition, should keep a lid on any meaningful appreciation for the Japanese Yen (JPY) and help limit losses for the USD/JPY pair. Hence, strong follow-through selling is needed to confirm that the recent recovery from the 155.25-155.20, or the monthly low, has run out of steam.

The USD/JPY pair retains a modest bullish bias above both the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 50.0% Fibonacci retracement of the recent corrective decline from a four-decade high. Moreover, the Moving Average Convergence Divergence (MACD) indicator is marginally positive, while the Relative Strength Index (RSI) is around 59.

Momentum oscillators, in turn, hint that upside momentum is constructive but not yet stretched. The USD/JPY pair, however, likely remains capped by the 200-period SMA at 160.33. This is followed by a dense Fibonacci ceiling higher up – the 61.8% level at 16.62 and the 78.6% retracement at 162.09, which together outline the next bullish objectives if buyers extend the move.

On the downside, initial support appears at the 50.0% retracement at 159.58, with the 100-period SMA at 159.13 reinforcing the floor ahead of deeper Fibonacci cushions at 158.55 and 157.27. Only a drop toward the cycle low area near 155.20 would seriously undermine the current constructive outlook and pave the way for some meaningful downside for the USD/JPY pair.

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

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this month. Japanese Yen was the strongest against the Swiss Franc.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).