FX.co ★ USD/JPY

USD/JPY is losing momentum towards 153.55 during the early Asian session on Wednesday. JPY is strengthening against the US Dollar (USD) as BoJ officials indicated a possible rate hike in September. All eyes will be on key US inflation numbers due to be released later in the week. The Japanese central bank is also expected to raise its policy interest rate from 1.0% to 1.25%, signaling that rate hikes are picking up pace. This would raise the rate to its highest level in roughly 31 years, following a previous hike in June, as the central bank tries to counter the risk of higher-than-expected inflation driven by elevated crude oil prices and a weak Japanese Yen. "However, an aggressive move from BoJ is still not out of the question." BoJ governor board member Hajime Takata mentioned earlier in the week, "A 25 basis point increase 'is not necessarily set in stone' and, in general terms, a series of two interest rate increases is also a possibility." This week, attention will focus on US PPI and CPI inflation readings. The results might help to clarify the Fed's decision-making process on the upcoming September meeting. If the outcome is bigger than expected, it could support the Greenback against the JPY. According to the CME FedWatch tool, traders have priced in nearly a 60% probability of an interest rate hike by the US Federal Reserve at its next meeting. Analysts at UOB Group say the recent fall in USD/JPY has caused a marked shift in their medium-term bias. They mention that as of Friday, 04 Sep, when the spot was trading near 155.90, they had noted that "conditions are very oversold" following the recent fall the previous Thursday, and that "USD must close below 155.00 to see any more weakness" with "the next key level below 155.00 being 154.20." Nonetheless, UOB emphasizes: "yesterday, USD staged a surprisingly sharp break below 155.00 to hit a low of 154.04." Such movements, the bank says, "indicate that USD will continue to weaken, with its next support being the year-to-date low of 152.08." In the bank's view, "the downward pressure will remain in place until USD stays below 156.00, a strong resistance level, from 157.50 before." USD/JPY is currently trading at 153.576, down sharply from the 163.8-164.2 area, a key supply level on the price chart. The fall marks a distinct shift in the market's daily structure after a downside breakout below previous support levels. The fall has been wide rather than corrective, as price cut through the 9-, 20-, and 50-day EMAs very quickly. Before the current candle, USD/JPY also brushed aside liquidity from recent lows and entered the 153.5-154.5 demand zone. A technically bearish scenario persists, although the current conditions have become highly oversold. Currently, the RSI(14) is 24.48, below 30, indicating heavy selling pressure. While this condition does not indicate a sustained reversal, there is a higher chance of an upside correction if bulls defend the order block currently in place. The EMA trend has also shifted bearish, as shorter-term EMAs have moved below the long-term EMAs due to the rapid breakdown. The MACD histogram is in the negative zone, indicating bearish momentum. The demand area is between 153.5 and 154.5 and marks the main level in the current downtrend. If price can defend this level, it may attract buyers from the order flow, driving the pair to the recovery area between 157.7 and 158.8, where the broken EMA cluster may become the new resistance. Further above the recovery level, the previous structural area of 159.9 to 161.0 becomes an obstacle, and the supply zone is located around 163.8 to 164.2. The dual perspective is, therefore, clear-cut. In order for a positive change to be made, it would be necessary for price to sustain itself within the 153.5-154.5 demand zone and initiate a meaningful rally out of the oversold RSI condition. A return to 157.7-158.8 would support the positive change scenario and indicate that bearish pressure is fading. On the other hand, a break below 153.5 would negate any immediate demand reaction and make the next target 151.2-152.3.