USD/JPY Rally Builds as Markets Turn Attention to Fed’s Warsh

Traders' Opinions

Summary:

USD/JPY rises above 159.50 despite stronger Tokyo core inflation and an unexpected decline in Japanese unemployment. Attention now turns to Kevin Warsh at Jackson Hole, with his comments on a possible September Fed hike potentially determining whether 160.00 comes under further pressure.

BUY USDJPY

Close Time

CLOSED

159.703

Entry Price

161.300

158.500

160.087 +0.697 +0.44%

33.2

Pips

Profit

158.500

160.035

Exit Price

159.703

Entry Price

161.300

The Japanese Yen continues to lose ground heading into the end of the week, with USD/JPY climbing above 159.50 and setting a fresh weekly high. Friday marks a fifth consecutive session of Yen weakness, an especially notable move considering that Japan’s latest inflation and labour-market figures strengthened the argument for another Bank of Japan rate increase.

The underlying inflation picture was firmer than the headline number initially suggested. Tokyo CPI slowed marginally to 1.9% year-on-year in August from 2.0%, but core inflation moved in the opposite direction, accelerating to 1.8% from 1.7%. Markets had expected the core reading to remain unchanged, leaving the measure increasingly close to the BoJ’s 2% objective.

Japan’s labour market added another hawkish element. The Unemployment Rate unexpectedly declined to 2.4% in July from 2.5%, reaching its lowest level in 12 months. Combined with firmer underlying inflation, the figures strengthen expectations that policymakers could consider another rate increase as soon as next month.

The data also gives additional weight to recent remarks from BoJ Deputy Governor Ryozo Himino, who has warned against waiting too long to respond to inflation. His argument is that timely tightening could reduce the risk of policymakers eventually being forced into sharper rate increases should price pressures become more difficult to control.

Yet the reaction in the currency market tells a different story. The Yen has continued weakening despite developments that would normally be supportive, allowing USD/JPY to move increasingly close to the psychologically important 160.00 threshold. That suggests traders are currently placing greater weight on the US monetary-policy outlook.

Friday’s attention therefore shifts decisively toward Fed Chair Kevin Warsh at Jackson Hole. The question is whether Warsh strengthens the case for another rate increase after other Fed officials adopted a more forceful tone on inflation.

Kansas Fed President Jeffrey Schmidt warned that inflation remains sticky, while Cleveland Fed President Beth Hammack argued that policymakers have reached a point where action is needed. Those remarks raise the stakes surrounding Warsh’s message.

Commerzbank sees two areas as particularly important. Markets will first look for how firmly Warsh addresses the possibility of a September rate hike. Investors will also listen for any indication that discussions within the Fed could eventually affect the specific inflation measure or figure around which its target is framed.

The Yen's inability to strengthen despite hotter core inflation and a tighter labour market is the most important signal from Friday's price action. Japanese data is increasingly supportive of BoJ tightening, yet USD/JPY continues to advance. Unless Warsh delivers a message that materially reduces.

Technical Analysis

USD/JPY is maintaining a bullish structure on the 4-hour chart, with price steadily recovering from the sharp volatility seen earlier in the month. The pair is now trading around 159.68, where buyers are once again challenging a resistance area that has repeatedly restricted upside progress.

Recent price action has developed into a sequence of higher lows, showing that buyers are becoming increasingly aggressive on each pullback. The latest advance has pushed USD/JPY back above the 159.45–159.55 zone, placing the pair directly beneath resistance around 159.70–159.80. This area has rejected previous upside attempts, making a convincing break above it important for confirming the next leg higher.

A sustained H4 move beyond 159.80 would strengthen the breakout case and bring the psychological 160.00 level back into focus. Clearing that threshold could accelerate bullish momentum, with relatively limited visible resistance before the larger 161.30–161.40 supply zone, which represents the primary upside objective on the chart.

The bullish setup also remains supported by the broader recovery structure. Pullbacks have repeatedly attracted demand around 158.50–158.60, while the more recent higher lows suggest buyers may not need such a deep retracement before attempting another breakout. The 159.45–159.55 region could therefore become an important retest area if price clears current resistance and subsequently pulls back.

On the downside, failure to hold above 159.45 would delay the immediate breakout scenario and could trigger another rotation toward 158.50–158.60. A decisive break beneath that support would weaken the current higher-low structure and expose the deeper 157.20–157.30 demand zone.

For now, however, the chart continues to favour the upside. USD/JPY is pressing against resistance rather than being aggressively rejected from it, and a confirmed move through 159.80 would leave 160.00 as the first hurdle before attention shifts toward the 161.30 region.

TRADE RECOMMENDATION

BUY USD/JPY

ENTRY PRICE: 159.70

STOP LOSS: 158.50

TAKE PROFIT: 161.30

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USD/JPY Rally Builds as Markets Turn Attention to Fed’s Warsh

Technical Analysis

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