The Yen Extends its Correction

On one hand, the dollar continues to find support from high US bond yields and the Federal Reserve's hawkish stance on inflation risks, which is limiting the scale of its decline.

On the other hand, a trifecta of factors is bolstering the yen's appeal as a safe-haven asset: signs of weakening business activity, growing US budget deficits, and heightened geopolitical tensions in Asia, particularly concerning Taiwan and the South China Sea.

An additional layer of complexity comes from the energy market. Instability and rising oil prices threaten to reignite inflationary pressures, which could force investors to reassess their interest rate expectations.

Collectively, these elements create a volatile fundamental backdrop. Short-term movements in USD/JPY are likely to be dictated by the delicate balance between the dollar's yield appeal and rising demand for safe-haven assets like the yen.

Technical Analysis: USD/JPY

H4 Chart:

On the H4 chart, the USD/JPY pair formed a consolidation range around 151.10. Following a downward breakout, the pair successfully reached its initial target at 149.38. The market has since completed a technical retest of the 151.10 level from below. The immediate scenario favours a further correction towards 149.00. Following this decline, we anticipate the start of a new growth wave, with initial targets at 151.50 and a longer-term prospect of resuming the broader uptrend towards 154.10. This outlook is technically confirmed by the MACD indicator. Its signal line remains below zero and is pointing downward, reflecting sustained bearish momentum with potential for a subsequent reversal.

H1 Chart:

On the H1 chart, the pair completed an upward leg to 151.10, forming a structure that suggests the correction phase has concluded. We now expect the development of a fifth decline wave towards 149.00. After this move lower, we will assess the potential for a new upward movement targeting 151.10. The Stochastic oscillator corroborates this view. Its signal line is currently below 50 and trending downwards towards the 20 zone, indicating that short-term downward potential remains intact.

Conclusion

The yen's correction is set to continue in the near term, driven by a complex mix of fundamental headwinds for the dollar and safe-haven demand. Technically, the path of least resistance appears to be a further dip towards 149.00, after which the broader bullish trend is expected to reassert itself, targeting levels above 151.50.

Disclaimer:

Any forecasts contained herein are based on the author’s particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.