The USD/JPY pair builds on the previous day’s breakout momentum beyond the 160.00 psychological mark, hitting a fresh high since July 2024 on Thursday. Economic concerns stemming from Middle East tensions counter the Bank of Japan’s (BoJ) hawkish pause and continue to undermine the Japanese Yen (JPY). Adding to this, sustained US Dollar (USD) strength provided an additional boost to the currency pair. The momentum, however, runs out of steam during the early part of the European session amid speculations that Japanese authorities will step in to stem further JPY weakness.

The BoJ decided to keep its benchmark interest rate unchanged at 0.75% on Tuesday. However, the 6-3 vote split, with three BoJ board members calling for a rate hike, along with upward revision of inflation forecasts, left the door open for a June or July rate hike. The initial market reaction, however, turned out to be short-lived amid worries that Japan’s economy will come under strains in the foreseeable future due to the continued disruption of supplies through the Strait of Hormuz. In fact, shipping traffic through the strategic waterway has seen a sharp decline recently due to Iran’s restrictions on movements and the US naval blockade of Iranian ports. Furthermore, US President Donald Trump said on Wednesday that the blockade will continue till Iran agrees to a deal.

Meanwhile, Japan’s Finance Minister Satsuki Katayama said that they are moving closer to taking decisive action in the foreign exchange markets. Adding to this, Japan’s top currency diplomat, Atsushi Mimura, said that they are coordinating with the US, based on their FX agreement in September last year, prompting some intraday short-covering around the JPY. The US Dollar (USD), on the other hand, retreats from its highest level since April 13. This turns out to be another that contributed to the USD/JPY pair’s sharp intraday downfall of over 100-pips from the 160.70-160.75 region. Any meaningful USD depreciation, however, seems elusive in the wake of stalled US-Iran peace talks and the US Federal Reserve’s (Fed) hawkish tilt on Wednesday.

US President Donald Trump rejected Iran’s proposal to end the two-month conflict and reiterated that there will be no peace deal unless the Islamic Republic agrees to give up its nuclear program. Trump added that the US naval blockade of Iranian ports will continue. This remains supportive of elevated Crude Oil prices, reviving inflationary concerns. Adding to this, the Fed’s decision to hold its key policy rate unchanged at 3.50%-3.75% saw the highest number of dissents since 1992, with three policymakers voting against the accommodative tone in the policy statement. Traders were quick to react and sharply reduced their bets on any further easing by the Fed in 2026, instead they are now pricing in over a 10% chance of a rate increase, which, in turn, favors the USD bulls.

The aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that the USD/JPY pair has topped out in the near term and positioning for any further depreciating move. Traders now look to the US economic docket, featuring the release of the Advance Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index. The crucial data will play a key role in influencing the near-term USD price dynamics and provide a fresh impetus to the USD/JPY pair later during the North American session.

USD/JPY 1-hour chart

Technical Analysis:

The sharp intraday pullback drags spot prices to the 159.50-159.40 confluence – comprising the 38.2% Fibonacci retracement level of the recent move up from the monthly swing low and the 200-hour Simple Moving Average (SMA). Meanwhile, the Relative Strength Index (RSI) reading around 34 hints at weak demand after the latest unwind. Moreover, the Moving Average Convergence Divergence (MACD) has turned negative, reinforcing soft downside pressure.

A clean break below the 159.50-159.40 confluence would expose the 50.0% retracement at 159.15, followed by deeper Fibonacci supports at 158.79 and 158.27, before a more solid floor appears near the 157.60 region. On the topside, initial resistance is aligned at the 38.2% retracement at 159.52, with further barriers at the 23.6% retracement near 159.97 and the recent swing high around 160.70, where selling interest could re-emerge.

(The technical analysis of this story was written with the help of an AI tool.)