USD/JPY Outlook: Takaichi’s actions limit Yen’s potential gains

USD/JPY Holds Steady Amid Asian Session

During Thursday's Asian trading hours, the USD/JPY pair remains confined to a narrow band near 158.50. The pair is consolidating as the strength in the US Dollar (USD) counterbalances the modest rebound seen in the Japanese Yen (JPY).

The Japanese Yen has managed to recover some ground after weeks of weakness, largely due to concerns over potential government intervention. On Wednesday, Japan's Chief Cabinet Secretary Seiji Kihara indicated that authorities might step in if there are sharp, one-sided movements against the Yen.

Despite this recent uptick, the Yen's recovery is likely to be limited, especially as Prime Minister Sanae Takaichi continues to attract attention with her policy stance.

According to Reuters, market participants are factoring in a likely win for Takaichi in the upcoming snap election, which she is expected to call next week by dissolving the lower house of parliament. Her anticipated victory would secure backing for her budget proposal, which includes increased government spending—a scenario that tends to boost Japanese equities but puts downward pressure on the Yen.

Meanwhile, the US Dollar Index (DXY) is holding firm near its monthly peak of 99.26, as investors expect the Federal Reserve to keep interest rates unchanged at its upcoming policy meeting.

Technical Overview: USD/JPY

At the time of reporting, USD/JPY is trading nearly unchanged around 158.56. The price remains well above the ascending 10-week Exponential Moving Average (EMA), highlighting a persistent bullish trend. The steady rise of the 10-week EMA continues to provide support on dips and maintains upward momentum.

The 14-week Relative Strength Index (RSI) is at 69.37, approaching overbought territory, which indicates strong momentum but also suggests the market may be overextended. The first level of support is found at the 10-week EMA, currently at 156.28.

• As long as the pair stays above the trend EMA, further gains are possible, with any declines likely to be cushioned by dynamic support.
• A minor pullback could help ease the RSI from near-overbought levels and support the ongoing uptrend.
• If the weekly close falls below 156.28, the bullish outlook would weaken, potentially leading to a deeper correction.

(This technical analysis was generated with the assistance of AI tools.)