The Middle East situation boosting the dollar's safe-haven demand, combined with weak Japanese consumption, causes the USD/JPY to once again test the 160 psychological resistance level.

FX Week News App — In Tuesday’s Asian session, USD/JPY touched a one-week high, nearing the 160.00 level but failing to break through effectively. Overall, it is showing a choppy but upward-tilted trend. The current exchange rate is mainly being driven by a divergence in fundamentals and a tussle over policy expectations.

From Japan’s side, weak economic data has been exerting sustained downward pressure on the yen. According to data released by Japan’s Ministry of Internal Affairs and Communications, Japan’s household spending fell 1.8% year over year in February, the third consecutive month of decline, indicating that consumer demand momentum remains sluggish. Although there was some rebound on a month-over-month basis, the overall performance still came in short of expectations, reflecting that the foundation for a recovery in domestic demand is still not solid. This data reinforces the market’s cautious outlook for Japan’s economic prospects, thereby weakening the yen.

Meanwhile, continued geopolitical tension in the Middle East further heightens pressure on Japan’s economy. Because Japan is highly dependent on energy imports—especially Middle East crude oil supplies—the risks surrounding the Strait of Hormuz are raising market concerns that higher energy costs will weigh on Japan’s economic recovery. Against this backdrop, market expectations for the Bank of Japan to raise rates in the near term have clearly cooled, which is also a negative for the yen.

For the US dollar, safe-haven demand has become the main supporting factor. U.S. President Donald Trump’s tough remarks regarding the Middle East situation, along with Iran’s refusal of a ceasefire proposal, have intensified market fears of escalation. This not only increases the dollar’s appeal as a safe haven, but also strengthens expectations of a rebound in inflation, thereby supporting the Federal Reserve’s stance of remaining relatively tight. The dollar therefore stays strong, providing upward momentum for USD/JPY.

That said, it’s important to note that expectations of potential intervention by Japanese authorities place a significant constraint on the exchange rate. Historical experience shows that when the exchange rate approaches or breaks key psychological levels, the likelihood of policy intervention rises noticeably. Therefore, although the fundamentals favor a stronger dollar, the exchange rate faces strong resistance around 160.

From a technical perspective, on the daily chart, USD/JPY remains within an upward-trending channel. Since the February low, it has been steadily climbing, with the highs and lows gradually moving higher, and the trend structure remains intact. The current price is approaching the prior high zone, creating clear technical suppression. The key resistance is located in the 160.00–160.50 range; if it breaks effectively, it could open up additional upside room. On the downside, support is at 158.00, with further support at 156.50. Momentum indicators show that the bulls still hold the upper hand, but the pace of the advance has slowed.

On the 4-hour timeframe, the exchange rate shows a choppy upward structure. Short-term moving averages remain in a bullish alignment, but price repeatedly stalls near the 160 level, indicating stronger selling pressure overhead. RSI is close to the high zone but has not entered an extreme overbought range, suggesting there is still some upward momentum but limited room. If 160.50 is broken, it may trigger an accelerated rally; if 158.00 is breached, it may move into a period of short-term consolidation and correction.

Editor’s Summary:

The current USD/JPY trend is dominated by “a strong US dollar + weak yen fundamentals,” but it is also constrained by expectations of policy intervention. Tensions in the Middle East and rising energy prices put pressure on Japan’s economy and weaken the yen, while the dollar remains strong supported by safe-haven demand and interest-rate expectations. The technical picture shows the exchange rate is still in an uptrend, but it faces strong resistance near key psychological levels. In the short term, USD/JPY may continue to trade in a high-range, choppy, and bullish-leaning pattern; whether it breaks out will depend on changes in the geopolitical situation and policy signals.

(Editor: Wang Zhiqiang HF013)

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