The US dollar index has retreated, and combined with the uncertainty in Japan's economic outlook, it has driven the USD/JPY exchange rate adjustment.

GTL (Tongtong Finance) APP News — In the Wednesday Asian session, the US dollar to Japanese yen edged higher slightly from near a one-week low, but its overall performance remains weak. The exchange rate continues to trade in a range below 159.00. The market is currently in a wait-and-see mode, mainly pricing around changes in the situation in the Middle East and the key US economic data scheduled for release.

US President Trump said that the US will gradually wind down its military action against Iran over the next two to three weeks, and emphasized that it can exit the conflict even if no agreement is reached. This statement strengthened market expectations that geopolitical tensions will ease, helping global risk sentiment rebound. A decline in safe-haven demand directly weakens the US dollar’s appeal, and is one of the important reasons for the dollar’s recent pressure.

Against this backdrop, the yen has gained some support. The Bank of Japan’s Tankan (Short-Term Economic Survey of Enterprises in Japan) showed that the sentiment index for large manufacturers rose to 17, marking the fourth consecutive quarter of improvement and the highest level since December 2021. The data reflects a recovery in confidence among Japanese companies, providing fundamental support for the yen.

However, the market has not fully shifted to a bullish view of the yen. On the one hand, BOJ officials noted that the survey has not yet sufficiently reflected the impact brought by the conflict in the Middle East; on the other hand, Japan is highly dependent on Middle Eastern energy imports, and if transport through the Strait of Hormuz is disrupted, it would deal a significant blow to the economy. Energy risk poses potential pressure on Japan’s economy, thereby limiting upside room for the yen to appreciate.

In addition, reports that the UAE is pushing for military action to restore passage through the Strait of Hormuz have once again increased the possibility of an escalation in the situation. This has caused the market to swing back and forth between “risk easing” and “potential escalation,” leaving the exchange rate without a clear direction.

Worth noting is that the market widely expects Japanese authorities to intervene in the FX market when necessary to stabilize the yen, which to some extent caps the upside potential for the USD/JPY exchange rate. Policy intervention expectations have become an important overhead suppressing factor.

From a technical perspective, at the daily level, USD/JPY is in a consolidation phase with price action at high levels. The exchange rate has repeatedly met resistance in the 159–160 area, indicating relatively strong sell pressure overhead. Preliminary support has formed near 158.00; once it breaks, it may further test the 156 zone. Momentum indicators show that the upward trend has slowed somewhat: the MACD gradually converges, and the RSI falls back into the neutral range, suggesting weakening bullish momentum.

At the 4-hour level, the short-term price action shows a weak rebound structure. Although the price has risen off the lows, it has not been able to effectively hold above 159, indicating insufficient follow-through from buyers. The moving-average system is trending toward flat; the MACD is oscillating near the zero axis, reflecting a balance of strength between bulls and bears. If the short-term price cannot break through the 159.50 resistance, it may retreat again to test the 158 support; conversely, if it breaks through, it could open up room for further upside.

Overall, USD/JPY is currently in a structure of “fundamentals diverging + technical consolidation,” and the near-term direction depends on fresh catalysts.

Editor’s Summary

The current USD/JPY trend is influenced by multiple factors interweaving. On the one hand, easing in the Middle East reduces safe-haven demand for the dollar; on the other hand, Japan’s economic data supports the yen, but energy risk and policy uncertainty limit its appreciation potential. Meanwhile, US economic data is about to be released and may become the key catalyst for choosing the near-term direction. Overall, in the short term, the exchange rate will most likely maintain a range-bound pattern; attention should be paid to changes in the geopolitical situation and the performance of macro data.

(Responsible Editor: Wang Zhiqiang HF013)

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