The USD/JPY pair continued its high-level consolidation during Tuesday's Asian session, trading around the 162.50 level. Although the US dollar paused its recent advance, the pair remained near its highest levels in nearly four decades, underpinned by escalating Middle East tensions and expectations of a hawkish Federal Reserve stance. Market concerns over potential intervention by Japanese authorities to support the yen also intensified.
In Japan, Finance Minister Shunichi Suzuki stated that the government could reassess the asset allocation of the Government Pension Investment Fund (GPIF) if the investment environment changes significantly. While these comments provided some temporary support for the yen, their overall impact on the exchange rate was limited. Meanwhile, the US dollar index moderated its ascent after two consecutive days of gains as investors awaited the release of US June Consumer Price Index (CPI) data and congressional testimony from Federal Reserve Chair Kevin Warsh. Some long positions were trimmed ahead of the key data, capping further upside for USD/JPY.
Fundamental Support for the Dollar
From a fundamental perspective, the US dollar continues to receive support from multiple factors. Tensions between the US and Iran have escalated, with Washington reinstating restrictions on Iranian ports and vessels and conducting military strikes against Iran for a third consecutive night. In response, Iran has intensified military actions against US allies and facilities in the region. Attacks on two UAE oil tankers near the Strait of Hormuz have heightened global energy supply risks.
The Strait of Hormuz handles approximately 20% of the world's seaborne crude oil shipments. As an economy heavily reliant on energy imports, Japan sources a significant portion of its crude oil from the Middle East. Rising international oil prices not only increase import costs but may also further dampen Japan's economic recovery prospects, putting pressure on the yen. Concurrently, higher oil prices have reignited concerns about global inflation, leading investors to anticipate the possibility of further monetary tightening by the Fed before year-end.
Although the Bank of Japan has previously raised its policy rate to 1%, the highest level since 1995, a substantial interest rate differential between the US and Japan persists. This gap keeps carry trades active, with capital favoring buying the US dollar and selling the yen, providing ongoing support for USD/JPY.
Market Focus on Intervention
The market is also highly focused on whether the Japanese government will undertake new foreign exchange market interventions. With the exchange rate consistently above 160, Japanese officials have recently emphasized they are closely monitoring currency movements. If USD/JPY continues to rise rapidly, it cannot be ruled out that the Ministry of Finance will resort to verbal warnings or even direct market intervention to stabilize the yen. Therefore, against a fundamentally supportive backdrop, the pair may continue to experience sharp, high-level volatility in the short term.
Technical Analysis
From a technical standpoint, the daily chart for USD/JPY maintains a clear uptrend, with the price consistently trading above the major moving average system, indicating the bullish structure remains intact. The MACD indicator maintains a golden cross and continues to diverge upward, suggesting strong medium-to-long-term upward momentum. The RSI indicator is operating at high levels, reflecting a market in a strong zone while also hinting at short-term overbought risks. If the pair effectively breaks above 162.80, it could further challenge resistance areas at 163.50 and 164.20. Support below is seen at 161.80 and 160.80; as long as key support levels hold, the overall upward trend is likely to continue.
On the 4-hour chart, USD/JPY has entered a high-level consolidation phase, oscillating around the 162 level. The MACD red histogram has narrowed slightly, indicating a slight slowdown in short-term upward momentum, but the dual lines remain above the zero axis. The RSI is maintained near 60, suggesting the bullish advantage remains unchanged. If US CPI data continues to support the Fed's tight policy stance, the pair could test resistance above 162.80 again. If the data disappoints or Japanese authorities signal stronger intervention, the pair may retreat to test support at 161.80 and 160.80, with short-term volatility expected to increase further.
Key Factors Ahead
Currently, USD/JPY remains supported by multiple factors including Middle East geopolitical risks, rising international oil prices, and hawkish Fed expectations, maintaining an overall strong bias. However, with the pair approaching multi-decade highs and expectations for Japanese government intervention heating up, the market faces significant policy risks. In the short term, the US June CPI data, remarks from Fed Chair Kevin Warsh, and developments in the Middle East situation will remain key variables influencing the exchange rate. If US inflation proves resilient, USD/JPY may maintain its high-level operation. Should policy expectations shift or Japan take actual intervention measures, exchange rate volatility could increase significantly.
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