The USD/JPY pair continued its pullback during Asian trading on Monday, hovering near the 163.60 mark. An improvement in market risk sentiment has diminished the safe-haven demand for the US dollar. Concurrently, a retreat in crude oil prices has lowered Japan's energy import costs, providing short-term support for the Japanese yen.
Due to Japan's heavy reliance on energy supplies from the Middle East, fluctuations in international oil prices have consistently been a key factor influencing the yen's performance. When crude oil prices rise due to supply concerns, Japan's import costs increase, potentially widening its trade deficit and weakening the yen's appeal. However, the recent decline in oil prices, driven by market expectations of easing tensions, has alleviated the external pressure on the Japanese economy.
The US has recently paused further military actions, and Iran has suspended retaliatory operations, cooling the previously intensifying safe-haven trades. The improvement in market risk appetite has weighed on the US dollar index, with funds partially flowing back into safe-haven assets like the yen, a key factor in the short-term decline of USD/JPY.
Nevertheless, investors have not fully dismissed concerns over energy supply risks. The situation in the Middle East remains subject to potential reversals. The Houthi movement in Yemen recently claimed an attack on Saudi energy facilities near the Red Sea, drawing continued market attention to the security of crude oil transport routes.
Market reports indicate that the US's decision to pause further actions includes considerations regarding the depletion of air defense interceptor resources and the costs of sustained operations. US senior military official Dan Caine reportedly warned that continued US operations could increase pressure on critical military resources. While this factor has reduced short-term market anxiety, investors remain closely monitoring whether the situation will again impact energy supply chains.
Simultaneously, Japan's domestic economic policy factors have become a significant variable influencing the yen's trajectory. According to Japanese media reports, the approval rating of Japanese Prime Minister Shigeru Ishiba has declined to a low since taking office, mainly due to rising living costs. The market believes that Ishiba's previous expansionary economic policies pushed bond yields higher and kept the yen under prolonged pressure, with the dollar-yen rate rising to multi-year highs. Domestic inflationary pressures and uncertainty over fiscal policy direction may limit the yen's room for sustained appreciation.
On the monetary policy front, the market widely expects the Federal Reserve to hold interest rates steady at its meeting this week, potentially restarting a rate hike cycle in September. However, some investors are still betting that the Fed might signal a more hawkish stance, with some not ruling out the possibility of unexpected policy changes during the meeting. Meanwhile, the Bank of Japan is also expected to maintain its current interest rate level at its meeting this week, but the market continues to watch for any signals of further monetary tightening in the future.
The core contradiction for USD/JPY currently remains centered on the change in the US-Japan interest rate differential and safe-haven capital flows. On one hand, US economic data and inflation trends will determine the Fed's policy path. On the other hand, the pace of the Bank of Japan's policy normalization and changes in energy prices will influence the yen's medium-term performance. If expectations for a Fed rate cut strengthen while the BOJ continues to signal rate hikes, a narrowing of the US-Japan yield differential could drive a further pullback in USD/JPY. However, if Middle East risks reignite, the dollar's safe-haven status could once again take the lead.
From a daily chart perspective, USD/JPY has recently shown signs of a pullback within a high-level range. The price remains above the 160 mark, and while the overall trend is still bullish, short-term momentum appears to be weakening. The current exchange rate is being influenced by declining safe-haven sentiment and a weaker dollar, continuously testing the support area below. At the daily level, if the price breaks below the 163.00 support level, it could further seek support in the 161.80 to 162.00 area. Resistance to the upside is seen in the 164.50 to 165.00 zone; if this area is breached, the previous upward trend could resume. Overall, the daily trend remains bullish, but upside momentum is undergoing a correction.
On the 4-hour chart, USD/JPY has entered a phase of choppy pullback. After the price broke below the recent high-level consolidation range, bullish momentum has weakened. The MACD indicator shows signs of shrinking short-term momentum, while the RSI has pulled back to the neutral zone, indicating that buying power has temporarily cooled. If the price can hold above the 164.00 level, it may attempt a short-term bounce toward the 164.50 area. However, a break below 163.00 could expand the pullback, moving towards the 162.00 area. The 4-hour chart currently suggests a range-bound adjustment, with the market awaiting further directional signals from the Fed and BOJ meetings.
The USD/JPY pair is currently influenced by multiple factors. The short-term pullback primarily stems from the easing of Middle East risks, lower oil prices, and reduced safe-haven demand for the US dollar. However, whether the yen can sustain a rebound depends on the direction of the Bank of Japan's policy, the Federal Reserve's interest rate path, and changes in the global energy market. If the US-Japan monetary policy differential narrows in the future, USD/JPY could continue to face downward pressure. Conversely, if geopolitical risks reignite safe-haven demand, the dollar could find support. Investors should focus on the Fed's meeting statement, the BOJ's policy signals, and crude oil price trends, as these factors will determine the next directional move for USD/JPY.