The USD/JPY pair has broken decisively lower. This reinforces the growing divergence between a weakening US macro backdrop and Japan’s robust external position. With the pair closing under key technical levels, supported by a strong macro and sentiment alignment, the outlook for USD/JPY is clearly bearish heading into the next leg of the cycle.

Fundamental Analysis

The US economy is showing signs of deterioration, with quarterly GDP falling to -0.3%. Additionally, annual growth has slipped to 2.0% from 2.5%. This confirms the US is entering a contractionary phase, with declining business confidence, weakening retail sales, and a slipping consumer sentiment index at 50.8. Inflation remains stable at 2.3%. This suggests the Federal Reserve is nearing or at its terminal rate of 4.5%.

By contrast, Japan’s economy, while also showing a slight contraction at -0.2% QoQ, is fundamentally sound in other key areas. USD/JPY reflects Japan’s current account surplus of 3678B and a surplus worth 4.7% of GDP. Inflation is holding above the BoJ’s 2% target, with a 2.6% YoY print and 0.3% MoM. This suggests there may be less scope for ultra-loose policy going forward. Moreover, Japan’s external metrics far surpass the US. This includes a trade surplus and rising long-term yield differentials that are beginning to stabilise.

In short, Japan’s structural surplus contrasts with the US’s expanding fiscal and external deficits. This results in sustained bearish pressure on USD/JPY.

Technical Analysis

On the weekly chart, USD/JPY has triggered a strong bearish reversal:

The pair has broken decisively below the Ichimoku Cloud, confirming a full trend shift. The Tenkan-Sen (145.55) is now below the Kijun-Sen (149.38). The Chikou Span is tracking well beneath price and the Kumo, reinforcing trend confirmation. Price is now trading at 143.29, comfortably under all key Ichimoku lines. The future Kumo is bearish, with Leading Span A at 147.46 and Leading Span B at 150.76.

The RSI is at 37.66, moving below the 40 zone and confirming bearish momentum. It remains below the signal line, with no signs of bullish divergence. This supports sustained downside pressure.

The MACD also points to further weakness in USD/JPY. The MACD line has crossed below the signal line and remains well below the zero level. The histogram is widening negatively, showing a continuation of bearish trend momentum.

Volume is steady but weighted on the downside, showing no buyer commitment at these levels.

From a price action standpoint, the rejection from 145.50 has resulted in a large-bodied bearish weekly candle. It has taken out support levels and signalled further downside toward the 140.00 region.

Sentiment Analysis

Retail sentiment shows 57% of traders are long USD/JPY. This positions the pair for a classic contrarian bearish signal. With sentiment skewed toward buying dips, the institutional market is more likely to fade those positions amid a broader dollar selloff.

Additionally, recent downgrades to the US credit rating and fiscal concerns surrounding growing deficits are weighing on the greenback across the board. Therefore, the position of USD/JPY is particularly vulnerable due to Japan’s external strength and investor hedging into JPY during periods of dollar weakness.

Conclusion

USD/JPY is now aligned bearishly across all major analytical pillars. Structurally weaker US fundamentals, robust Japanese external surpluses, and broad-based dollar sentiment shifts are fuelling the downside move. The technical chart confirms a clean bearish setup, with Ichimoku signals, RSI, and MACD momentum all pointing to further declines.

Traders should watch for a sustained move toward the psychological 140.00 level, with any bounces likely to be sold. Unless the US economic outlook stabilises significantly or the BoJ turns unexpectedly dovish, the bias remains firmly to the downside.

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