USD/JPY Climbs Amid Improved Risk Sentiment, Eyes Key Resistance
USD/JPY touched a one-week high Wednesday, trading near the top of its 155.36-156.71 range as firmer U.S. Treasury yields and a record high in the S&P 500 bolstered risk sentiment. The pair benefited from sliding volatility, with 1-year USD/JPY vol sinking to its lowest level since early September at 9.5%. Yen crosses also gained, with investors favoring risk-on trades. However, USD/JPY’s advance faces headwinds as markets prepare for the Bank of Japan’s policy decision on Friday, where a 25-basis-point rate hike is widely expected but unlikely to significantly alter yen sentiment due to the BOJ’s cautious outlook.
Technical Analysis
Technically, USD/JPY remains in an uptrend but faces key resistance levels. Immediate resistance lies at the 21-day moving average at 157.12, with further hurdles near 158, a zone of significant price congestion. Support is seen at 155.35, marked by the lower Bollinger Band, with additional protection in the 154.80-155.00 zone. A drop below 154.45 (December 19 low) could trigger unwinding of long positions, potentially accelerating the decline. Meanwhile, turning slow stochastics suggest the pair retains momentum for further gains in the near term.
Market Outlook
Focus shifts to upcoming data and the BOJ decision. Japan’s December trade data and weekly Ministry of Finance flows will provide additional context ahead of Friday’s BOJ meeting. Investors are watching for signals about future tightening, with expectations that the central bank will remain cautious even if it hikes rates. For now, fading yen strength remains the favored strategy, with USD/JPY likely to test resistance near 157.12 if risk sentiment continues to improve.