However, if the pair continues to drop below the 157 level, it will open the door for a continued decline toward the 152 area. This level is marked by the red dotted support line.

But the RSI indicator shows an extremely oversold condition in the short term and indicates a rebound before the next drop. A recovery above 161.50 will suggest that the bottom has formed. This bottom may allow the pair to continue upside.

In Closing

The BOJ has opened the door to another interest rate hike. Rising producer prices, strong wage growth and higher inflation expectations support the tighter policy. The weak yen also increases imported inflation. In my view, the BOJ may raise the policy rate to 1.25% in September or October. It could delay the move if inflation eases or the yen continues to recover.

The higher Japanese interest rates could place further pressure on USDJPY. A continued decline below 157 may push the pair toward the 150-152 area. But the oversold conditions could trigger the short term rebound first. A recovery above 161.50 would indicate that the bottom is confirmed and the pair is ready to move higher again.

Read more: BOJ Rate Hike to 1.25% Puts Japanese Yen in Focus