Japanese Yen Outlook Rests on Bank of Japan Stance. USD/JPY Set to Blast Off?

Japanese Yen Forecast:

• US dollar / Japanese yen It rises slightly after the Fed’s decision on Wednesday
• Attention now turns to the Bank of Japan Monetary policy advertisement
• The Bank of Japan is expected to keep its ultra-loose stance unchanged, creating additional headwinds for Japan. Japanese Yen

Most read: The Fed has paused for the time being but there are signs of a peak rate hike, and gold prices have turned the other way

USD/JPY moved slightly higher on Thursday, despite broad-based US dollar weakness, due to lower US Treasury yields. In early afternoon trading, the pair rose about 0.25% to 140.35, off Asian session highs, when it rose briefly above 141.50 and reached its best since November 2022, after the Fed’s decision to signal a higher interest rate in June. Federal Open Market Committee meeting.

Looking to the future, the Bank of Japan monetary policy announcement Friday (Thursday evening US time) will be the next major volatility trigger to watch. In terms of expectations, the Bank of Japan is seen to be very dovish, keeping its benchmark interest rate and yield curve control program unchanged.

Economic calendar

source: DailyFX Economic Calendar

Bank of Japan Governor Kazuo Ueda, who took office in April, has repeatedly warned against an early exit from expansionary policies, noting that a rapid shift to a tighter stance could have a detrimental effect on employment and wage growth, complicating efforts to achieve stable inflation. 2.0% over the long term. Flipping it overnight would be a blow to Ueda’s credibility.

With the Bank of Japan unwilling to withdraw stimulus, and with the FOMC set to raise borrowing costs twice more in 2023, USD/JPY is likely to remain biased to the upside in the near term. Although markets seem skeptical of the Fed’s plans to resume increases later this year, yield differentials between the US and Japan still favor USD strength for the time being.

While the excessive weakness of the Japanese yen may force the government to intervene to curb rampant speculation, USD/JPY is not yet over the top. intervention threshold. However, if the pair breaks above 145.00, traders should be more concerned, as last year the authorities started selling dollars when the exchange rate was flirting with 146.00 and 152.00.

Technical analysis of the USD/JPY pair

USD/JPY has been curling inside a symmetrical triangle in recent weeks and it is often seen as a continuation pattern according to technical analysis. The rolling phase finally resolved to the upside, with prices exiting the triangle and briefly reaching a nearly seven-month high.

And while the breakout has held so far, the bullish momentum is weakening. Whatever the case, the broader bias remains constructive, but to be confident in the bullish theory, a move and a weekly closing above 140.40/140.70 is required. If this scenario plays out, USD/JPY could gain strength to challenge 142.50, 50% Fibonacci retracement of the Oct 2022/Jan 2023 sell-off.

On the flip side, if sellers regain control of the market and push prices below 139.75, we might see a pullback towards 139.00. On further weakness, focus shifts to the psychological level of 138.00, ahead of the 200-day SMA and the short-term uptrend line at 137.25.

Technical chart of the USD/JPY pair

USD/JPY chart set up using TradingView