Written by: Rania Gule, Senior Market Analyst at XS.com – MENA

(MENAFN- Your Mind Media ) The USD/JPY pair remained relatively stable within a short-term downward price channel near the lower boundary at 154.60, following the Federal Reser’e’s decision to keep interest rates unchanged at their current levels between 4.25% and 4.50%. A slight hawkish tilt accompanied this decision due to persistent inflationary pressures. In my view, this stability reflects a delicate balance between the factors influencing both currencies, as the Fed continues its cautious monetary policy while expectations grow that the Bank of Japan may move toward further tightening this year.
The’Fed’s decision to leave interest rates unchanged was not surprising to the markets. However, the more hawkish tone in its statement indicates growing concerns over the slow progress in controlling inflation. Despite declining inflation rates in some sectors, consumer spending remains strong, and the labour market is resilient, reinforcing the likelihood of maintaining a restrictive monetary policy for an extended period. This was reflected in rising U.S. bond yields, with the 10-year Treasury yield jumping four basis points to 4.581%, strengthening the dollar in the near term.
Despite the ’ollar’s improved performance, the USD/JPY pair saw a slight decline to 154.31, indicating that investors are also closely watching the Bank ’f Japan’s next moves. Increasing expectations that the BoJ may raise interest rates again this year have provided relative support for the yen, as Japanese authorities seek to end their ultra-loose monetary policy after a decade of continuous easing. Additiona’ly, Japan’s wage negotiations, which are expected to result in strong pay increases, could give the central bank further incentives to pursue more monetary tightening.
In my opinion, the B’nk of Japan’s stance will be a key factor in determining th’ USD/JPY pair’s direction in the coming period. While the wide interest rate gap between the U.S. and Japan continues to favour a stronger dollar, any indication of a real shift in BoJ policy could prompt investors to increase bets on yen appreciation. Minu’es from the BoJ’s December meeting showed that officials have started emphasizing the need for a cautious adjustment of monetary policy, raising the likelihood of future interest rate hikes in Japan.
Another factor influencing the pair’s movement is the political landscape in the United States. Investors are closely monitoring the potential economic policies in the coming period, particularly those of President Donald Trump. His policies, including higher tariffs and stricter immigration controls, could lead to additional inflationary pressures, forcing the Fed to keep interest rates elevated for longer. If this scenario materializes, it could further strengthen the dollar against other currencies, including the yen.
However, any deterioration in economic sentiment or rising recession fears could push the Fed to alter its strategy. So far, the Federal Reserve has not provided clear signals regarding the timing of potential rate cuts, but it remains under pressure from macroeconomic data and geopolitical developments. If markets start pricing in U.S. rate cuts in the second half of the year, we could see a weaker dollar, supporting a rise in the yen.
The USD/JPY pair now faces strong resistance near the 155.35 level, where it has recently struggled to break through decisively. Sustained selling pressure at this point could signal a potential downward correction if expectations for a more hawkish Bank of Japan increase. Conversely, a further rise in U.S. bond yields could support a breakout above this level, pushing the pair toward new upside targets.
In conclusion, the USD/JPY pa’r’s direction in the coming months will largely depend on the policy divergence between the Fed and the BoJ and global economic and political developments. Continued Fed tightening could keep the pair at elevated levels, but any unexpected moves from the BoJ could reshape the outlook in favour of the yen. In this environment, caution remains essential when assessing future movements, as expectations could shift rapidly based on economic and political developments.
Technical Analysis of (USDJPY) Prices:
The hourly chart of the USD/JPY pair shows a clear decline after breaking the corrective price range (WXYXZ) within the descending channel, reinforcing the likelihood of a continued downtrend. The price is currently facing resistance at the 100-hour simple moving average (SMA) near 155.44. If the price manages to break above this level, we could see an extension of the upward movement toward the 200-hour moving average at 155.71, which serves as a key resistance level for sustaining bullish momentum.

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