Short-covering and reduced geopolitical risks drive a pullback in the pair, though the broader uptrend remains intact ahead of Fed and BoJ decisions.
The USD/JPY pair slipped to 163.50 on Monday, paring gains after hitting a 40-year high near 164.00. The retreat followed a relief rally in the Japanese Yen, driven by short-covering of long USD positions as US-Iran tensions eased, raising hopes for Middle East negotiations.
The pullback reflects market caution ahead of this week’s Federal Reserve and Bank of Japan policy meetings. Analysts note that while lower energy prices have provided temporary relief for Japanese policymakers, the yen remains vulnerable without hawkish guidance from the BoJ, particularly if the Fed signals a more aggressive stance.
Technical support for USD/JPY is seen near 162.80, with the pair maintaining a bullish outlook above a rising trendline from early-July lows. The 4-hour Relative Strength Index suggests a moderation in upward momentum, though the broader trend remains constructive.