Current dynamics

The USD/JPY pair is gaining value for the third month in a row: last week, the pair tested the 156.25 level (Murray [6/8] level), but cannot break above it yet, as its dynamics are affected by uncertainty about further monetary policy steps by the Bank of Japan and the US Fed.

The US regulator is expected to adopt a more cautious approach to easing parameters in the near future, as announced actions by the administration of President-elect Donald Trump, including tax cuts and additional trade tariffs, could lead to a new rise in inflation. In this environment, a reversal of the 25 basis point rate cut in December and a general slowdown in the pace of interest rate reductions next year are seen by investors as quite likely. However, the regulator's head Jerome Powell recently stated that "the economy is not giving any signs of a need to hurry to cut rates," and Federal Reserve Bank (Fed) President Susan Collins considers the matter open.

In turn, Bank of Japan officials expressed their determination to further raise borrowing costs due to the solid dynamics of the consumer price index driven by wage growth. This position was confirmed by the head of the Japanese regulator Kazuo Ueda, but did not specify the timing of the next interest rate hike, which raised doubts among investors about the possibility of such action before the end of this year, especially in the context of the slowdown of economic growth in Japan in the third quarter to 0.2% and the likely increase in pressure due to the complications of trade relations with the US and China.

Hence, the fundamental backdrop remains favorable for the USD/JPY pair to continue its upward trend.

Support and resistance levels

From a technical point of view, the instrument is at 153.12 (Murray [5/8] level), supported by the middle line of Bollinger Bands, consolidation below which will allow for the continuation of the corrective decline to 150.00 (Murray [4/8] level). The key level for bulls is 156.25 (Murray [6/8] level), consolidation above this level will allow for the resumption of the move towards the target levels of 159.37 (Murray [7/8] level) and 162.50 (Murray [8/8] level).

Technical indicators confirm the continuation of the uptrend: Bollinger Bands are directed upwards, MACD is stable in the positive zone, Stochastic is reversing downwards, which does not rule out a downward correction, but its potential seems limited.

Resistance levels: 156.25, 159.37, 162.50.

Support levels: 153.12, 150.00.

Trading scenarios

Long positions can be opened above 156.25 or on a price reversal around 150.00 with targets at 159.37, 162.50 and stop losses at 154.00 and 148.00 respectively. Execution time: 5-7 days.