On Thursday (January 16th), the foreign exchange market showed a relatively obvious risk sentiment, with the Japanese yen continuing its strong performance. The US dollar/yen (USD/JPY) traded at 156.188, down 0.16% from yesterday, continuing yesterday's decline. The market's expectation of the Bank of Japan (BoJ) raising interest rates has become the main factor driving the appreciation of the yen. Although the US dollar has also rebounded slightly, the fundamental support of the yen has limited the upward space of the USD/JPY.

Market Dynamics and Fundamental Analysis

The strength of the Japanese yen comes from the market's expectation that the Bank of Japan will soon raise interest rates. Bank of Japan Governor Kazuo Ueda reiterated in recent statements that if economic and price conditions continue to improve, the central bank will discuss the possibility of raising interest rates at its monetary policy meeting on January 23-24. This statement has increased the market's bets on the Bank of Japan raising interest rates, thereby driving a strong rebound in the yen, especially after the yen hit a four week high against the US dollar. More importantly, the yield of Japanese 10-year treasury bond has risen to the highest level since 2011, which indicates that the market expects the Bank of Japan to have room for further tightening policies.

At the same time, the relatively mild inflation data in the United States further affected the trend of the US dollar. The US Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose 0.4% month on month and 2.9% year-on-year in December, slightly higher than market expectations. The core CPI (excluding volatile food and energy) increased by 3.2% year-on-year, slightly lower than November's 3.3%. Although the data shows that inflation in the United States has gradually slowed down, the decline in the yield of US treasury bond bonds and the market's expectation that the Federal Reserve (Fed) may suspend interest rate cuts have weakened the upward momentum of the US dollar.

Technical analysis

There is still some uncertainty in the short-term trend of the US dollar against the Japanese yen. The current USD/JPY trading is at 156.188, which is close to the previous high of 156.35-156.40. If this area continues to form an effective resistance level, it may limit the upward space of the exchange rate. From a technical perspective, if the price breaks through the support zone around 156.00, it may further retreat and seek support at the psychological level of 155.00. If the price falls below 155.00, it may accelerate its downward trend to the 154.55-154.50 region, which is also the lower boundary of the upward channel in the past four months.

Below 154.50, USD/JPY will face further support levels, first around 154.00, followed by the horizontal range of 153.40-153.35. If the exchange rate breaks through this level, it may enter a deeper downward adjustment, challenging the support range near the previous multi month high.

If the price rebounds and breaks through the resistance zone of 156.35-156.40, it may push the price up again and challenge higher levels in the 156.75 and 157.00 zones. In addition, if the USD/JPY breaks through 157.00, it may push prices further up and ultimately test the 158.00 mark.

Future trend outlook

In the short term, the US dollar against the Japanese yen is still in a certain stage of technical adjustment. Although the market's expectations for US economic data are relatively mild, the appreciation momentum of the yen remains strong, especially driven by expectations of interest rate hikes by the Bank of Japan. The market will continue to pay attention to the upcoming US economic data and the results of the Bank of Japan's monetary policy meeting, which is expected to provide new guidance for the future trend of USD/JPY.

Given the current technical pressure on the US dollar against the Japanese yen, if the price breaks through the 156.35-156.40 range, it may return to an upward trajectory. However, if the price remains below this range, it may increase the risk of a pullback, especially after breaking through the 155.00 support, the exchange rate may challenge lower support areas. Therefore, the short-term trend of USD/JPY will closely depend on the upcoming economic data and policy developments.