The USD/JPY currency pair has retreated toward the 159.20 region during Monday’s late Asian trading session, reversing its earlier gains as the US Dollar (USD) weakens. Despite lingering geopolitical uncertainty tied to stalled US-Iran diplomacy, the Greenback has failed to sustain upward momentum.
This shift in tone has weighed modestly on the pair, even as broader technical conditions remain supportive. In their article, the brokers at Achievements AI break down this topic in a clear and comprehensive way.
At the same time, the US Dollar Index (DXY), which measures the USD against a basket of six major currencies, has slipped toward 98.45, signaling mild selling pressure. The pullback suggests that traders are adopting a cautious stance ahead of major central bank decisions later this week.
Geopolitical Developments: US-Iran Talks Collapse
Geopolitical tensions remain a key underlying factor influencing market sentiment. The United States recently canceled a planned diplomatic engagement with Iran, which had been scheduled to take place in Islamabad. The decision reflects dissatisfaction with Iran’s latest counterproposal, which US officials deemed insufficient for meaningful progress.
The US President acknowledged that Tehran’s revised offer showed improvement compared to prior proposals but emphasized that it still fell short of expectations. The collapse of these talks underscores persistent uncertainty in global energy markets, which can indirectly affect currency flows, particularly for safe-haven and risk-sensitive assets.
Central Bank Focus: BoJ and Fed in the Spotlight
Investor attention is firmly fixed on upcoming policy decisions from the Bank of Japan (BoJ) and the Federal Reserve (Fed), scheduled for Tuesday and Wednesday, respectively.
Market consensus strongly suggests that both central banks will leave interest rates unchanged. However, the tone of their policy statements will be critical. Policymakers are expected to highlight a delicate balance between upside inflation risks, driven partly by elevated energy prices, and downside economic risks, including slowing global growth.
For the Fed, traders will scrutinize any forward guidance on inflation persistence and the potential timing of future rate adjustments. Meanwhile, the BoJ is likely to maintain its accommodative stance but could subtly adjust its outlook if inflationary pressures continue to build domestically.
The divergence, or lack thereof, between these two central banks remains a key driver of USD/JPY movements. A more hawkish Fed relative to the BoJ would typically support further upside in the pair, while a cautious or dovish tone could cap gains.
Technical Analysis: Breakout Retest Holds the Key
From a technical standpoint, USD/JPY is currently testing a critical breakout region near 159.20, which corresponds to the upper boundary of a previously established Descending Triangle pattern on the daily chart. This formation is generally considered a bullish continuation signal when the price breaks above the descending trendline.
Encouragingly for bulls, the pair continues to trade above the 20-day Exponential Moving Average (EMA), currently positioned at 159.14. This level acts as immediate dynamic support and reinforces the broader constructive bias.
Momentum indicators also support a cautiously bullish outlook. The Relative Strength Index (RSI) is hovering around 52, suggesting neutral-to-slightly positive momentum. Importantly, the RSI is not in overbought territory, leaving room for further upside without signaling exhaustion.
Key Support and Resistance Levels
On the downside, immediate support lies near 159.17–159.14, where the reclaimed descending trendline aligns closely with the 20-day EMA. A decisive break below this zone would weaken the bullish structure and expose the next major support near 157.60, corresponding to the horizontal base of the triangle pattern.
On the upside, sustained price action above 159.20 could pave the way for a move toward the psychological resistance at 160.00. A confirmed breakout above this level would likely trigger additional buying interest, potentially driving the pair toward the March 30 high at 160.46.
Outlook: Policy Signals to Drive Next Move
In the near term, USD/JPY is likely to remain range-bound with a bullish bias, as traders await clarity from central bank communications. The pair’s ability to hold above the 159.20 breakout zone will be crucial in determining whether the next leg higher materializes.
While geopolitical developments continue to provide background noise, monetary policy expectations are clearly the dominant force shaping price action. Any surprises from the Fed or BoJ, particularly in forward guidance, could act as a catalyst for increased volatility.
Conclusion
USD/JPY’s retreat toward 159.20 reflects short-term USD weakness rather than a structural shift in trend. With the pair holding above key technical support and testing a significant breakout level, the broader outlook remains cautiously bullish.
However, with both the BoJ and Fed poised to deliver critical policy updates, traders should brace for potential volatility. The interplay between interest rate expectations, inflation risks, and global economic uncertainty will ultimately determine whether USD/JPY can extend its rally beyond the 160.00 threshold or retreat toward lower support levels.
