USD/JPY forecast as the Japanese yen crash gains momentum

The Japanese yen continued its strong downward trend, reaching its weakest level since 2024 as concerns about the Japanese economy accelerated. The USD/JPY exchange rate rose to 159.63, up by nearly 5% from its lowest point in January this year.

Japanese yen crash gains steam amid the Iran war

The USD/JPY exchange rate has been in a strong uptrend in the past few years. It has jumped by 5o% in the last five years.

The ongoing rally is happening as the Iran war continues, leading to higher crude oil and natural gas prices. Data shows that Brent and West Texas Intermediate (WTI) rose to $100 and $95 on Friday, continuing a trend that has continued in the past few days.

Japan is highly exposed to the ongoing war because it lacks natural resources like oil and natural gas. Instead, the country imports most of its energy from the Middle East, where Iran has blocked the Strait of Hormuz.

Therefore, it is likely that the Japanese economy will remain under pressure in the coming months as inflation rises, pushing manufacturing costs substantially higher.

The war will likely push Japan into stagflation, a period characterized by high inflation and slow economic growth. Stagflation is one of the worst economic conditions as it makes it hard for the central bank to react.

In a stagflation, rising interest rates to counter inflation often leads to a slow economic growth. On the other hand, cutting rates to boost the economic growth often leads to higher inflation. 

US dollar rally continues amid safe-haven bets

The USD/JPY exchange rate has jumped because of the US dollar surge as it became a safe-haven asset. Data shows that the US Dollar Index (DXY) has jumped to $100 for the first time this year.

The US dollar has reclaimed its safe-haven status amid the ongoing Iran war. This is partly because of the rising hope that the Federal Reserve will maintain a more hawkish tone despite the stagflation risk.

A report released last week showed that the US labor market deteriorated last month. It shed over 92,000 jobs in February, worse than the median estimate of over 50k. 

At the same time, inflation is expected to remain at an elevated level this year now that energy prices have jumped by over 50% this month. Rising energy prices normally leads to higher prices across the board.

Therefore, the upcoming Personal Consumption Expenditure (PCE) report will not have a major significance. Economists expect the report to show that the headline PCE rose 2.9% in January.

USD/JPY technical analysis

USD to JPY chart | Source: TradingView

The daily chart shows that the USD to JPY exchange rate has rebounded in the past few weeks. It rebounded after forming a double-bottom pattern at 152.21 and a neckline at 157.5, its highest point in February this year.

The pair has remained above all moving averages. It also jumped briefly above the key resistance level at 159.40, the previous year-to-date high. 

The pair remains above the 50-day and 100-day Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) is nearing the overbought level.

Therefore, the path of the least resistance is upward, with the next key target being at 160, followed by the psychological level at 161.