During the Asian trading session on Tuesday, the USD/JPY pair reached a one-week high, approaching the 160.00 level but failing to sustain a decisive breakthrough, overall showing a volatile yet firm trend. The current price movement is primarily influenced by diverging economic fundamentals and shifting policy expectations.
From the Japanese perspective, weak economic data continues to weigh on the yen. According to figures released by Japan's Ministry of Internal Affairs and Communications, household spending in February fell by 1.8% year-on-year, marking the third consecutive monthly decline, indicating persistently weak consumer momentum. Although there was some improvement month-on-month, the overall performance fell short of expectations, reflecting an unstable foundation for domestic demand recovery. This data has reinforced cautious market expectations regarding Japan's economic outlook, thereby weakening the yen.
Simultaneously, ongoing tensions in the Middle East are amplifying economic pressures on Japan. Given Japan's heavy reliance on energy imports, particularly crude oil supplies from the Middle East, risks surrounding the Strait of Hormuz have raised concerns that rising energy costs could hinder Japan's economic recovery. In this context, market expectations for a near-term interest rate hike by the Bank of Japan have significantly cooled, further contributing to yen weakness.
On the U.S. dollar side, safe-haven demand serves as a key supporting factor. Firm statements from U.S. President Donald Trump regarding the Middle East situation, coupled with Iran's rejection of a ceasefire proposal, have heightened market fears of an escalating conflict. This not only boosts the dollar's safe-haven appeal but also reinforces expectations of rising inflation, thereby supporting the Federal Reserve's relatively tight policy stance. Consequently, the dollar remains strong, providing upward momentum for the USD/JPY pair.
However, it is important to note that expectations of potential intervention by Japanese authorities pose a significant constraint on the exchange rate. Historical experience shows that the probability of policy intervention increases markedly when the exchange rate approaches or breaches key psychological levels. Therefore, despite fundamental factors favoring dollar strength, the pair faces strong resistance near the 160 level.
From a technical perspective, on the daily chart, USD/JPY remains within an overall upward trend channel, with consistently higher highs and lows since the February low, indicating an intact trend structure. The current price is testing the previous high zone, forming a clear technical resistance. Key resistance lies in the 160.00-160.50 range; a decisive break above this level could open the door for further gains. Support is seen at 158.00, with further support at 156.50. Momentum indicators still favor the bulls, though the pace of the advance has slowed.
On the 4-hour chart, the pair shows a volatile upward structure, with short-term moving averages maintaining a bullish alignment. However, repeated failure to break decisively above the 160 level indicates substantial selling pressure overhead. The RSI is near overbought territory but has not yet entered extreme levels, suggesting some remaining upward momentum but limited room for further gains. A break above 160.50 could trigger accelerated buying, while a drop below 158.00 might signal a short-term corrective phase.
The current USD/JPY movement is primarily driven by a combination of U.S. dollar strength and underlying Japanese economic weakness, but is simultaneously constrained by intervention expectations. Middle East tensions and rising energy prices pressure the Japanese economy, weakening the yen, while the dollar is supported by safe-haven demand and interest rate expectations. Technically, the pair remains in an uptrend but faces significant resistance near key psychological levels. In the short term, USD/JPY is likely to maintain a firm, range-bound pattern near current highs, with any decisive breakout dependent on developments in geopolitical tensions and policy signals.
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