The USD/JPY pair edged higher during Asian trading on Monday, reclaiming the 159 level and approaching 159.50, continuing its recent strong performance. The pair is nearing the nearly four-week high set last week, driven by concerns over slowing economic growth in Japan and renewed safe-haven demand for the U.S. dollar.
Data released that day showed Japan's corporate capital expenditure for the first quarter stagnated year-on-year, falling significantly short of market expectations and slowing sharply from the approximately 6.5% year-on-year increase in the fourth quarter of 2025. As a key indicator of economic vitality, the weakening momentum in business investment has raised fresh concerns about Japan's economic recovery prospects.
The stagnation in capital expenditure growth signals reduced corporate expansion intentions and reflects a cautious stance among businesses regarding the future economic environment. Against a backdrop of rising global economic uncertainty and heightened volatility in energy prices, Japan, as an economy highly dependent on energy imports, faces increasing pressure.
Simultaneously, the Middle East situation remains a significant variable affecting global markets. Israel's expansion of ground operations in Lebanon has tightened regional security tensions again. Furthermore, negotiations between the U.S. and Iran over the nuclear program and issues related to the Strait of Hormuz have yet to yield a breakthrough, with both sides continuing to exchange proposals through mediation channels in Pakistan and other regions.
The market widely views the security of transport through the Strait of Hormuz as directly linked to the stability of global energy supply. The strait handles about 20% of global seaborne crude oil shipments. Any disruption in transport would pose a greater impact on Japan's economy, which is highly reliant on imported energy. Consequently, escalating geopolitical risks are undermining confidence in the Japanese yen.
On the other hand, the U.S. dollar is receiving support from multiple favorable factors. As Middle East risks persist, capital is flowing back to safe-haven assets like the dollar. The U.S. Dollar Index has been gradually rebounding from its recent two-week lows, indicating a decline in market risk appetite.
Additionally, the rebound in international oil prices from last week's lows has reignited concerns about U.S. inflation. Investors worry that rising energy costs could increase transportation and production expenses, potentially delaying the process of disinflation in the United States. The market generally expects the Federal Reserve to maintain its high-interest-rate policy for longer than previously anticipated. If energy prices continue to rise and push inflation higher, the Fed might even maintain a hawkish stance. This expectation is keeping U.S. Treasury yields elevated and further enhancing the dollar's appeal.
Some market analysts noted, "The current rise in USD/JPY is not solely driven by dollar strength; weak Japanese economic data and the impact of energy risks on Japan's economic outlook are also significant factors pushing the pair higher." However, concerns remain that the Japanese government might intervene in the currency market again. As USD/JPY nears the 160 psychological level, market attention is highly focused on the policy moves of Japan's Ministry of Finance and the Bank of Japan. Historical experience shows that when USD/JPY rapidly approaches or breaches key psychological levels, Japanese authorities often intensify verbal warnings or even take actual intervention measures to slow the yen's depreciation. Therefore, despite the overall upward trend in USD/JPY, investors remain somewhat cautious about chasing the rally.
From a daily chart perspective, USD/JPY maintains a clear upward structure overall. The pair continues to trade above the main moving average system, with the medium- to long-term trend still favoring the bulls. The 158.00 area constitutes a significant near-term support level, while the 160.00 level is a key psychological resistance. A subsequent effective break above 160.00 could see the market test the 161.50 and even 163.00 areas. A fall below 158.00 might trigger a phase of adjustment. The RSI indicator remains above 60, indicating that bullish momentum still holds the advantage. The MACD indicator continues above the zero line, with the red histogram gradually expanding, reflecting a strengthening upward momentum in the market.
On the 4-hour chart, the pair has been rebounding steadily from around 156.50, with short-term moving averages re-forming a bullish alignment. The MACD indicator has formed a golden cross and continues to diverge upward, suggesting short-term funds are still biased towards buying. The RSI indicator has risen to around 65, not yet entering extreme overbought territory. Near-term support levels are located around 158.80 and 158.00, while the first resistance above is near 159.50. A break above this level could see the pair challenge the 160.00 level. Overall, the short-term trend remains strong, but caution is warranted for potential sharp volatility due to the risk of Japanese official intervention as the pair approaches the 160 level.
This week, market focus will shift to key U.S. economic data. Investors will closely watch the ISM Manufacturing PMI, employment data, and the subsequent Non-Farm Payrolls report. These figures will not only influence the market's assessment of the U.S. economic outlook but also directly impact expectations for future Federal Reserve policy. Strong data could continue to support USD/JPY, while signs of an economic slowdown might limit further dollar gains.
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