USD/JPY is positioning for renewed upside as macroeconomic divergence between the United States and Japan deepens. With technical signals now aligning with the broader policy gap, the setup for a sustained bullish move in the pair is gaining traction.

Fundamental Analysis

The macroeconomic fundamentals behind the USD/JPY trade are some of the most clear-cut in the major FX space.

The United States continues to demonstrate economic resilience. GDP growth is solid at 2.3 percent, with annualised growth holding at 2.5 percent. Labour markets remain tight, and business sentiment is stable, reflected in a business confidence reading of 50.3 and a services PMI of 54.3. Inflation, while moderating, remains elevated enough to keep the Federal Reserve on a cautious path, with the policy rate at 4.5 percent.

Japan, on the other hand, is still stuck in ultra-accommodative monetary policy. Despite a 3.7 percent YoY inflation rate, the Bank of Japan has held interest rates at just 0.5 percent. This vast rate differential – currently around 400 basis points – continues to attract capital into USD and away from JPY.

Moreover, Japan’s macro indicators are mixed. Growth is weak (0.6 percent), and although unemployment is low at 2.5 percent, business confidence and manufacturing PMI figures suggest softness in domestic demand. The structural disinflationary pressures that have characterised Japan’s economy for decades persist, reinforcing the BoJ’s dovish stance.

This creates a strong case for a continued divergence between the two central banks, which tends to favour USD/JPY upside.

Technical Analysis

The daily chart for USD/JPY shows that the pair is attempting to regain bullish momentum following a multi-month correction.

Ichimoku Cloud Analysis: Price is currently trading inside the Kumo, attempting a bullish breakout from below. The Conversion Line (149.18) is now above the Base Line (149.42), which is an early bullish signal. The Chikou Span is within the cloud but turning upward, supporting a potential breakout if follow-through occurs. The Future Kumo remains bearish for now (Leading Span A < B), but the angle is flattening, which often precedes a reversal.

RSI and MACD: RSI has turned upward and currently reads 54.14, suggesting bullish momentum is building. The RSI-based moving average at 41.73 confirms recent strength. MACD is now bullish: the MACD line has crossed above the Signal line, and the histogram is expanding positively. This marks a momentum reversal following the Q1 correction.

Candlestick and Price Action: The price recently broke above 150.00, tested resistance at 150.94, and is now consolidating just above 150.50. A potential inverse head-and-shoulders pattern is forming, indicating a medium-term bottom. Volume has increased on the recent rally, adding conviction to the price action.

Overall, technicals suggest a transition phase is underway. A confirmed daily close above the top of the Kumo, near 152.37, would confirm a full trend reversal and continuation of the broader bullish cycle.

Sentiment Analysis

Market sentiment on USD/JPY has stabilised and is beginning to tilt bullish again. With the Fed adopting a data-dependent tone and refraining from any imminent rate cuts, rate differentials remain wide and supportive of the dollar.

Meanwhile, the yen continues to attract minimal safe-haven demand, even during periods of geopolitical risk, a sign that its historical status as a defensive currency has diminished. Markets remain unconvinced that the BoJ is ready to normalise policy, even with inflation elevated.

Options positioning shows renewed interest in USD/JPY upside exposure, and speculative positioning in the yen remains net short according to the latest Commitments of Traders data. Overall, sentiment supports a shift back toward USD strength and JPY weakness.

Conclusion

USD/JPY is entering a critical juncture where all major factors are starting to align. The macroeconomic backdrop shows clear divergence, the fundamental policy gap remains wide, sentiment is shifting in favour of USD, and the technical picture is improving.

Although the pair remains just inside the Ichimoku cloud, bullish momentum is building. A decisive close above 152.37 would mark the final confirmation of a trend reversal, with upside potential resuming in line with the broader macro narrative.

This trade reflects one of the most reliable long-term themes in forex markets: interest rate divergence and central bank divergence. With the BoJ continuing to lag its peers and the Fed maintaining restrictive policy, the long USD/JPY case remains compelling.