USD/JPY Weekly Outlook: Dollar Stays Firm but Downside Risks Emerge

USD/JPY remains in a strong uptrend on the weekly timeframe, with the dollar maintaining its dominant position against the Japanese yen, yet the analysis flags growing downside risks that could challenge the pair's current trajectory. The dollar's strength has been underpinned by expectations that the Federal Reserve will keep interest rates elevated for longer, with Goldman Sachs recently scrapping its 2026 rate cut forecast entirely. However, the Bank of Japan's anticipated rate hike cycle presents a narrowing yield differential that could eventually weigh on the pair. The weekly analysis identifies key risks including potential shifts in US economic data, particularly the upcoming CPI release, and any acceleration in BoJ policy normalization. Support levels to monitor include the 160.00 psychological handle and the 158.50 zone, while resistance near 161.00 and the multi-decade highs remains relevant. Traders should exercise caution as the pair trades at historically elevated levels where intervention risk from Japanese authorities remains a persistent threat, potentially capping further upside despite favorable fundamentals for the dollar.