USD/JPY edged higher on Tuesday, rising 0.2% to trade between 157.26-157.80 in illiquid conditions due to the Japan holiday. The pair found support from strong demand for carry trades in Asia, with AUD/JPY and NZD/JPY posting robust gains. A recovery in U.S. equity futures further buoyed risk appetite, keeping USD/JPY supported despite a softer U.S. dollar.

From a technical perspective, USD/JPY is testing key levels. The pair continues to trade above the rising daily Ichimoku cloud, but the thinning of the cloud in January suggests diminishing upward support. Immediate support is at the Tenkan line near 157.05, with the cloud top at 153.37 providing more robust protection. Resistance remains firm at 158.00-10, where the pair’s uptrend has repeatedly stalled. Mixed short-term moving averages and flattening daily momentum studies indicate a lack of strong directional momentum, leaving the pair vulnerable to range-bound trading.

The outlook for USD/JPY depends on whether it can break out of its current range. A close above 158.10 would likely reinvigorate bullish sentiment, signaling a potential continuation of the uptrend. On the downside, a break below the Tenkan line could trigger a test of the cloud top at 153.37, which would mark a significant shift in momentum. Until then, carry trade demand and risk sentiment are likely to dictate near-term price action.