Monday, July 22, 2024
Home CommoditiesForex USD/JPY Forecast: Retracement amid hawkish BoJ stance

USD/JPY Forecast: Retracement amid hawkish BoJ stance

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  • U.S. consumer confidence improved sharply in May from 97.5 to 102.0.
  • US yields rose, leading to a weakening of the yen.
  • Bank of Japan Governor Seiji Adachi said the weak yen could lead the central bank to raise interest rates.

The outlook for USD/JPY remains bullish despite volatility due to rising US yields and hawkish comments from the Bank of Japan. The pair initially hit a four-week high on the back of rising US dollar and US yields, but then retreated after Bank of Japan policymakers hinted at a possible interest rate hike in the near future.

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Data on Tuesday revealed that U.S. consumer confidence surged from 97.5 to 102.0 in May. This lowered expectations of a Fed interest rate cut, sending the dollar soaring. At the same time, it pushed up yields, leading to a weaker yen. With the economy doing well, the Fed will likely keep interest rates high for a long time. As a result, the interest rate gap between Japan and the U.S. will widen.

However, the yen strengthened slightly after Bank of Japan director Seiji Adachi said the central bank could raise interest rates if a weaker yen leads to higher inflation or inflation expectations. Notably, Japan’s currency has fallen by more than 10% this year despite the Bank of Japan’s first interest rate hike in March. This fall is due to the interest rate differential between Japan and the United States. Even the Bank of Japan’s intervention only had a temporary impact on the yen. Analysts expect the Bank of Japan to raise interest rates again in July.

Meanwhile, a survey showed Japanese consumer sentiment worsened in May, as the Bank of Japan’s interest rate hike plans continue to face challenges as the data points to weak economic demand.

Major events for USD/JPY today

No big impactful events are announced in either the US or Japan today, so investors will continue to absorb the latest data.

USD/JPY technical forecast: Bulls remain weak above 156.50

USD/JPY 4-hour chart

On the technical front, the USD/JPY price is trading between the support level at 156.50 and the resistance level at 158.01. Moreover, it is maintaining a position above the 30-day SMA, supporting the bullish trend.

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However, the momentum remains weak, with the price remaining close to the SMA and the RSI failing to reach the overbought levels. If this weak trend continues, the price can reach the resistance at 158.01. On the other hand, if the bulls give up control, the price can sink below the SMA and the support levels at 156.50.

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