USD/JPY soared to 163.81 on Friday, marking a new 40-year high. Repeated warnings of possible currency intervention have so far failed to halt the yen's decline amid a broad strengthening of the US dollar.
The market paid little attention to the Japanese Finance Minister's statement that authorities are ready to take decisive action. Reports that the Bank of Japan may allow a faster pace of rate hikes than markets currently expect also failed to provide support.
Additional pressure on the yen is coming from concerns over Prime Minister Sanae Takaichi's fiscal policy and the escalating US–Iran conflict. Japan is heavily dependent on energy imports, making the economy and trade balance particularly vulnerable to rising oil prices.
Headline inflation in Japan hit a six-month high in June, reinforcing expectations of further rate hikes. However, the yen has already lost 0.8% since the start of the week and is on track for its worst weekly performance since May.
Technical Analysis
On the H4 USD/JPY chart, the market is forming a consolidation range around the 163.70 level, currently extending between 163.97 and 163.70. A rise to 164.27 is expected today, with scope for the trend to extend to 164.84. The MACD indicator supports this scenario, with its signal line above zero and pointing firmly upwards.
On the H1 chart, USD/JPY has completed a downward move to the 163.50 level, with a possible extension towards 163.30. Thereafter, a move higher towards at least 164.30 is expected. A breakout above this level would open the way for a continuation towards 164.84. The Stochastic oscillator confirms this scenario, with its signal line below 50 and pointing downwards towards 20, indicating short-term downside pressure before a potential reversal.
Conclusion
USD/JPY has surged to a fresh 40-year high as the yen remains under pressure amid a strong dollar and persistent headwinds. Despite official warnings of potential intervention and indications that the Bank of Japan may tolerate a faster pace of rate hikes, markets remain largely unresponsive. The currency continues to face pressure from concerns over fiscal policy, escalating Middle East tensions, and Japan's reliance on energy imports. Although domestic inflation has accelerated to a six-month high, the yen is on track for its worst weekly performance since May. Technically, further upside towards 164.27–164.84 appears likely, with intervention risks remaining a key wildcard.
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