USD/JPY Price Forecast: Approaches 160.00 on Yen’s continued underperformance

The USD/JPY pair posts a fresh one-and-a-half-year high near 159.45 during the early European trading session on Wednesday. The pair strengthens as the Japanese Yen (JPY) continues to underperform across the board amid political uncertainty in Japan.

Concerns over Japan’s political outlook stemmed after reports stating that Prime Minister Sanae Takaichi could call an early snap election. According to Japan’s regional news outlet Nikkei, Takaichi is to inform her intent to dissolve parliament on Wednesday, a precursor to the onset of new elections.

Additionally, hopes of a looser monetary and fiscal policy this year are constantly keeping the Japanese Yen on the back foot.

Meanwhile, strength in the US Dollar (USD) is also acting as a tailwind for the pair. The US Dollar Index (DXY) trades close to its monthly high near 99.25 as speculation for the Federal Reserve (Fed) holding interest rates steady remains intact, following the release of the United States (US) inflation data for December. The data showed that the US headline and core Consumer Price Index (CPI) rose steadily at an annualized pace of 2.7% and 2.6%, respectively.

USD/JPY technical analysis

USD/JPY trades higher to near 159.33 at the time of writing. Price holds well above a rising 20-week Exponential Moving Average (EMA) at 154.19, underscoring a strong bullish trend.

The 14-week Relative Strength Index (RSI) at 70.85 (overbought) flags stretched momentum and heightens the risk of a pause.

With momentum stretched, further gains could slow, and consolidation could emerge. A dip would be expected to find support at 154.19, the 20-week EMA, while trend bias remains positive above that gauge.

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