USD/JPY is holding near 158.850–158.900 on Monday and remains biased to the upside. The dollar strengthened to a weekly high amid a new escalation in the Middle East, while the yen came under pressure again. During the Asian session, the pair rose toward 159.06, meaning the market once again approached the area where participants begin discussing a possible response from Japanese authorities. For now, however, overall capital flows remain in favor of the dollar.
The key domestic factor for the yen remains the position of the Bank of Japan. Kazuo Ueda did not give a clear signal last week about a rate increase as early as April, after which the market’s assessment of the probability of such a move fell noticeably. The regulator acknowledges that inflation is being fueled by an external price shock, but at the same time emphasizes soft financial conditions and the need to wait for greater clarity regarding the conflict’s impact on the economy.
Even taking into account the risk of currency intervention, the fundamental picture still remains favorable for further growth of the pair. Japan and the United States have already agreed to strengthen coordination on the foreign exchange market, and officials continue to warn against excessive moves. However, until a more decisive step appears from the Bank of Japan, the yield gap and stronger demand for the dollar as a safe-haven asset continue to support USD/JPY. Therefore, the scenario of growth toward higher levels looks preferable on the current date.
Trading recommendation: BUY 158.850, SL 158.550, TP 159.750