• The USD/JPY outlook remains modestly bullish, as poor risk sentiment benefits the dollar more than the yen.
• Japan’s PM could call for an early election, keeping the yen under pressure.
• Speculations about the Fed’s independence could limit the dollar’s rally in the short term.

The USD/JPY pair trades near a one-year high as the Japanese yen faces pressure. At the start of the week, the pair dropped for a short time but quickly bounced back, close to the 158.00 handle.

The price action shows the US dollar’s structural strength against a weaker yen. Even though geopolitical risks are rising, the yen has had a hard time attracting buyers. Uncertainty rises due to tensions in the Middle East and the war between Russia and Ukraine, but demand for the yen as a safe haven remains low.

Instead, domestic factors are in charge. The supply chain concerns have grown since China decided to stop sending certain dual-use goods to Japan. Meanwhile, the possibility that Prime Minister Sanae Takaichi will call an early general election has added to the political uncertainty. This, along with the fact that the timing of the next Bank of Japan rate hike is still unclear, has kept the yen on the defensive.

The dollar lost slight traction after last week’s data, but it remains fundamentally strong. The number of nonfarm jobs in December went up by 50k, missing expectations. However, the unemployment rate dropped to 4.4%, and wages grew at a faster rate of 3.8% YoY. The Federal Reserve cares more about these details. Markets have lowered their odds for rate cuts this year, which is favorable for US yields and the dollar.

Concerns about the Fed’s independence are adding another layer of complexity. Chair Jerome Powell said that the Department of Justice is threatening to charge someone with a crime based on their past testimony. This has shaken up the markets and paused aggressive dollar buying, but it hasn’t been enough to halt the broader USD/JPY uptrend.

Traders are now paying attention to US CPI and PPI data. Inflation surprises will be crucial in deciding whether USD/JPY can stay above 158.00 or finally see a bigger drop.
 

USD/JPY Technical Outlook: Bulls Cracking 158.00
 

(Click on image to enlarge)

USD/JPY 4-hour chart
 

The USD/JPY price remains firmly bullish on the daily chart, holding above all key moving averages. Price is consolidating just below the 158.00 psychological level after breaking above the prior resistance at 157.75.

The 20-day and 50-day SMAs are rising, providing dynamic support near 156.40 and 155.75, confirming trend strength. The 200-day SMA near 149.00 reinforces the broader upside bias. RSI is around 63, showing positive momentum without overbought conditions. A sustained close above 158.00 opens room to test the 2025 high zone, while dips toward 156.50 should attract buyers.

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