• The USD/JPY price analysis reveals a strong uptrend amid the US-Japan yield differential and rising dollar flows during risk-off market conditions.
• Carry dynamics favor the USD after risk-off sentiment is triggered by the Venezuelan operation.
• Markets are now turning their attention to the US jobs and PMI data due this week.

The USD/JPY has started the year on solid ground, pushing to the 157.30 level as the US dollar gains strength while the yen struggles to build momentum. The background narrative has remained the same. The differentials between yields remain wide, and global investors continue to prefer dollar exposure during uncertain times.

The Bank of Japan’s rate hike to 0.75% in December was more symbolic than substantive, although it has not significantly altered market behavior. Investors are no longer concerned about the current rates but are more concerned with the rate at which they are changing. In that regard, BoJ has not presented much clarity.

The authorities have again reiterated that further hikes would be pegged on wages and economic factors, yet they have no definite schedule. Hence, traders are still hesitant to price a sustained recovery of the yen. This indecisiveness has enabled carry dynamics to remain strong. US yields are still significantly higher than those in Japan, despite the Fed easing expectations.

Geopolitics has been an added support to the greenback. The intensified tensions, such as the recent US operation in Venezuela and the failure to make progress on various flashpoints around the world, have strengthened the dollar as the preferred reserve currency. Conversely, the yen has never been able to draw its customary safe-haven flows, mostly because rate differentials have been the driving force.

Nevertheless, the upside in USD/JPY has no limits. The Japanese authorities remain cautious about rapid currency movements, particularly when liquidity is thin or when the market appears unstable. With the gradual upward movement towards the high 157s, perhaps being accepted, any more drastic moves would most probably provoke more official rhetoric and increase the likelihood of intervention.

Now, attention is turned to US economic data. The releases this week, including the ISM survey and the monthly jobs report, will be closely monitored. Indications of the softer labor conditions would be a stronger argument in favor of Fed easing and might finally relieve some pressure on the yen.
 

USD/JPY Technical Price Analysis: Eyes at 157.76
 

(Click on image to enlarge)

USD/JPY 4-hour chart
 

The 4-hour chart for USD/JPY reveals a strong bullish scenario, with eyes on the December highs around 157.76. However, the RSI lingers near the overbought zone, suggesting a potential consolidation and pullback before upside continuation.

However, the pullbacks could be weak and temporary, as the confluence of the 20- and 50-period MAs near 156.50 provides strong support ahead of the 156.00 support near the 200-period MA, and finally a demand zone at 155.50.

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