Introduction

The USD/JPY pair is entering a pivotal phase as contrasting monetary policies between the Federal Reserve and the Bank of Japan continue to drive market sentiment. With US growth remaining firm and inflation elevated, the Fed sustains its restrictive stance, while the BoJ clings to ultra-loose policy despite modest price pressures. This divergence, coupled with technical signals of a potential breakout, sets the stage for further USD/JPY strength.

Fundamental Analysis

The US economy shows robust GDP growth and resilient employment, with inflation still above the Fed’s target. This keeps policy bias hawkish, supporting the dollar. Japan, in contrast, faces subdued growth, heavy debt burdens, and only modest inflation, leaving the BoJ committed to accommodative policy. Yield spreads strongly favour the USD, maintaining upward pressure on the pair.

Sentiment Analysis

Positioning data highlights a bearish tilt on JPY as investors use it as a funding currency in carry trades. Retail sentiment shows persistent long-JPY bias, typically contrarian. Futures data confirms speculative accounts remain net short JPY. Broad market sentiment is firmly aligned with further USD gains against the yen.

Technical Analysis

USD/JPY trades above the Ichimoku cloud, with price testing resistance around 149. A breakout would confirm bullish momentum, supported by MACD stabilising near the zero line and RSI holding neutral at 49, leaving room for upside. Key support is at 146.5, while resistance lies near 149. A decisive move above 149 could open the path toward 152.

Conclusion

The combination of macroeconomic divergence, bearish JPY sentiment, and supportive technical structures favour a bullish USD/JPY outlook. Traders should monitor price action around 149 for confirmation of a breakout that could extend the dollar’s dominance against the yen.