USD/JPY Forecast: Navigating the Bullish Breakout Ahead!

Past performance is not indicative of future results. All historical data, including but not limited to returns, volatility, and other performance metrics, should not be construed as a guarantee of future performance. 

The USD/JPY pair on the 4-hour timeframe 

The USD/JPY pair on the 4-hour timeframe has exhibited a dynamic price structure over recent weeks, marked by periods of consolidation and sharp directional moves. A notable uptrend that began in mid-November 2024 culminated in a peak near the 158.68 resistance level. Following this, the pair entered a corrective phase, pulling back toward the 153.75 support level by early January 2025, where a potential double-bottom formation appears to have emerged. 

Recent price action suggests that the pair is attempting to rebound, with prices currently testing the 156.42 resistance level. The 200-period simple moving average (yellow line) has acted as a key dynamic support, reinforcing the bounce. However, the 100-period simple moving average (blue line) remains overhead, capping further upside momentum. Oscillators provide mixed signals: the RSI hovers near 55, indicating moderate bullish momentum, while the stochastic oscillator is overbought, hinting at a potential pullback in the short term. 

The main scenario anticipates a bullish breakout above the 156.42 resistance, targeting the next resistance levels at 157.56 and 158.68. This scenario would be supported by sustained buying interest and favorable macroeconomic catalysts, such as a weaker yen following dovish surprises from the Bank of Japan (BoJ). However, confirmation of this scenario would require a decisive close above the 156.42 threshold with increased trading volume. 

An alternative scenario envisions a bearish retracement toward the 155.16 level, with further declines to the 153.75 support zone if selling pressure intensifies. This outcome could materialize if the BoJ adopts a hawkish stance during its upcoming meeting, or if US economic data bolsters the dollar in the coming days. A failure to sustain above the 200-period moving average would validate this bearish outlook. 

Investors should exercise caution as volatility is expected to surge around the upcoming BoJ policy meeting, scheduled for January 23–24, 2025. The market has largely priced in a 25 basis point rate hike, but any surprises in the decision or the accompanying Outlook Report could lead to significant fluctuations. Similarly, upcoming US economic data, including industrial and manufacturing production figures, CPI, and retail sales, will shape market sentiment and influence USD/JPY movements. 

Fundamental drivers have been pivotal in shaping the USD/JPY trajectory. The yen has recently gained strength amid rising expectations of a BoJ rate hike, driven by optimistic comments from BoJ officials on Japan’s wage growth prospects. Meanwhile, the US dollar has faced pressure due to softening inflation data and narrowing yield spreads, which signal potential Federal Reserve rate cuts later in 2025. With these key dynamics in play, traders should remain alert to breaking news and market developments. 

Summary: 

• USD/JPY testing key resistance at 156.42; 200-period SMA acting as support. 
• Breakout above 156.42 targets 157.56 and 158.68, with a weaker yen supporting upside. 
• Bearish retracement to 155.16/153.75 possible if selling pressure rises or BoJ turns hawkish. 
• Watch for volatility around the BoJ meeting (Jan 23-24, 2025) and US economic data (CPI, retail sales). 
• The yen is gaining strength on BoJ rate hike expectations, while USD faces pressure from soft inflation data.