USD/JPY Surpasses 154.00: How Much Is the US Dollar Worth in the Battle Between Central Banks?

The Divergence in Monetary Policy Drives the Dollar Higher

The week begins with a clear dynamic in the currency markets: while the US Dollar gains ground, the Japanese Yen continues to weaken for the fourth consecutive day, hitting lows not seen in the past two weeks. This movement is not random but reflects a fundamental divergence in the approaches of the two major central banks worldwide.

How much is a US Dollar actually worth right now? The answer goes far beyond the simple exchange rate. The price of the USD/JPY pair depends on how the market perceives the relative strength of the two economies and, most importantly, on expectations about which central banks will raise or lower rates in the coming months.

The Puzzle of the Bank of Japan’s Policy

The Bank of Japan raised its main interest rate to 0.75% in December, reaching the highest level in three decades. However, this increase did not have the expected effect on the forex market. Why? Because investors remain uncertain about the continuation of the tightening cycle.

According to BoJ guidance, future rate hikes will depend on the results of wage negotiations next spring. This vague schedule leaves the market in a state of anticipation. Meanwhile, structural factors such as government energy subsidies, stable rice prices, and low oil costs are expected to keep inflation under control until 2026. With such a framework, rates could remain steady for longer than expected, weighing on Yen valuation.

The Global Context Boosts Appetite for the Dollar

The strength of the US Dollar is not only due to domestic policies but also the global geopolitical context. Persistent tensions in regions like Ukraine, Iran, and Gaza have kept the “risk-on” sentiment high in the market, reinforcing the Dollar’s role as a safe-haven currency. Market participants seek stability, and the Dollar still represents the safest port.

When investors are fearful, they flow into the Dollar. This dynamic continues to support the USD/JPY pair well above 154.00 levels.

The Challenge from the Federal Reserve

Despite the current momentum, there are signals suggesting a possible limit to the Dollar’s gains. The market is already pricing in rate cuts by the Federal Reserve starting from March, with the possibility of additional reductions during the year. If the Fed indeed eases monetary policy, the Dollar could lose its yield advantage over other currencies.

Additionally, concerns about the independence of the Federal Reserve add uncertainty that could hinder further appreciation.

Technical Indicators Maintain a Bullish Bias

From a technical perspective, the USD/JPY pair remains strong. The price continues to trade above the 200-period Simple Moving Average (SMA 200), currently at 156.04, which acts as a dynamic support. The MACD indicator remains above its Signal line with a growing histogram, confirming ongoing bullish momentum.

The Relative Strength Index (RSI) stands at 64.83, indicating bullish sentiment without reaching overbought levels. As long as the pair remains supported by the rising SMA 200, the technical outlook remains positive.

The Role of Upcoming Economic Data

Traders are now closely watching this week’s US economic calendar. Monday’s ISM Manufacturing PMI and Friday’s Nonfarm Payrolls report will provide crucial insights into the strength of the US economy and, consequently, the future trajectory of Federal Reserve policy.

These releases could serve as catalysts for the next price move in the USD/JPY pair.

The Risk of Japanese Intervention

Although the market remains bullish on USD/JPY, there is a tail scenario related to potential intervention by Japanese authorities. If the Yen weakens further and begins to cause real economic issues (through imported inflation), the government might decide to act to counter the depreciation. In such a case, traders should be cautious about maintaining aggressive long positions on the pair.

Conclusion: Wait for Clarity Before Acting

The USD/JPY pair remains supported by fundamentals in the short term. However, the overall picture remains complex, with the divergence in central bank policies playing a crucial role. Before making significant moves, many traders might prefer to wait for key economic data this week and further developments from Japanese authorities. Tactical stability could prevail over aggressiveness until the macro landscape becomes clearer.