Elliott Wave Analysis of USDJPY: Outlook as of July 21st, 2025
Adapted and Expanded from an Article by EWM Interactive
As of July 21st, 2025, the USDJPY currency pair remains a central focus for forex traders due to its sensitivity to both U.S. and Japanese economic shifts, particularly interest rate dynamics. Using Elliott Wave theory, a powerful technical analysis tool based on the psychology of market crowd behavior, traders attempt to anticipate price movements by identifying repeating wave patterns. This article presents an in-depth analysis of the USDJPY pair through the lens of Elliott Wave theory, based on insights originally published by EWM Interactive. Special credit goes to EWM Interactive for its pioneering interpretation of this scenario.
The Current Landscape
After a bull run that began in early 2021, USDJPY climbed steadily, reflecting the diverging monetary policies of the Bank of Japan (BOJ) and the U.S. Federal Reserve (the Fed). Throughout this period, the Fed’s rate hikes and the BOJ’s policy of yield curve control contributed significantly to a stronger U.S. dollar against the yen. As of mid-2025, however, key indicators suggest that the long-term uptrend may be entering a terminal phase, signaling potential reversal.
Elliott Wave Pattern Overview
Elliott Wave theory organizes price action into five-wave impulse patterns followed by three-wave corrective phases. According to EWM Interactive, USDJPY’s bullish structure unfolded in a five-wave impulsive move from 2021 onwards and is potentially nearing the end of its fifth wave, a signal that a corrective phase could soon emerge.
The observed structure breaks down as follows:
Wave I:
• Initiated in early 2021
• Characterized by sharp gains as the Fed initiated its tightening cycle
• Supported by improving U.S. employment and inflation metrics
• Ended by mid-2021 near the 115.00 level
Wave II:
• A counter-trend correction, completing around late 2021
• Presented as a three-wave zigzag (A-B-C), pulling back to approximately 110.00
• A period of consolidation and uncertainty due to conflicting macroeconomic signals
Wave III:
• The strongest of the impulse waves, extending from early 2022 into mid-2023
• Propelled the pair dramatically upward, peaking above 145.00
• Supported by consistent Fed rate increases and BOJ’s continued dovish stance
• Displayed a clear, extended substructure with five smaller waves within it
Wave IV:
• Marked by sideways consolidation and increased volatility through late 2023 and early 2024
• Took the form of a contracting triangle, a common corrective structure in Elliott Wave theory
• The lowest point in this wave tested around the 133.00 level
• Maintained the overall bullish structure but showed momentum loss
Wave V (Current):
• Started in early 2024
• Has taken USDJPY to new multi-decade highs near the 160.00 mark by July 2025
• While still incomplete, the wave shows signs of divergence in momentum indicators, such as RSI and MACD
• Pattern suggests we may be in the final stages of this impulsive bull run
Clues to Impending Reversal
There are several technical and fundamental indications that the current fifth wave may soon be ending. Among these are:
• Bearish Divergence:
– Technical indicators like the Relative Strength Index (RSI) are not confirming the latest price highs.
– Momentum has begun to wane, a classic sign that a fifth wave is concluding.
• Internal Structure of Wave V:
– The internal composition of Wave V appears nearly fully developed.
– The wave is subdivided into five smaller degree waves itself, a key requirement of Elliott patterns.
– The final sub-wave (5 of 5)
Explore this further here: USD/JPY trading.