- The yen gained 2.4% this week.
- The chances of the BoJ increasing the rate are above 67%.
- BoJ may announce plans to taper bond purchases.
The outlook for USD/JPY is slightly bullish, with the yen retreating from a two-month high. This change is coming
as the dollar strengthens on the back of upbeat GDP data, pointing to a strong economic landscape. At the same time, investors are looking forward to the Bank of Japan’s policy meeting next week.
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The yen rallied 2.4% this week amid increasing expectations of a BoJ rate hike. When the week began, investors priced in a 40% chance of a 10 basis point decline next week. However, the probability has risen to 67.2% as the week winds down. In particular, there is more pressure on Japan’s central bank to raise rates as a weak yen hurts the economy.
Furthermore, the BoJ may announce plans to taper bond purchases. A rate hike and reduced economic stimulus could push the yen higher. Investors are also optimistic that the Fed will start cutting rates soon, narrowing the gap between Japan and the US.
Meanwhile, following upbeat US data, the US dollar extended Thursday’s gains. Notably, the US economy grew by 2.8% in the second quarter, beating forecasts of 2.0%. The report had little impact on expectations for the Fed’s September tapering, as inflation eased despite resilient demand.
Furthermore, US jobless claims fell to 235,000 last week, missing forecasts for 238,000, pointing to a still tight labor market. The reports could keep policymakers wary at next week’s policy meeting. Investors are eagerly awaiting the core PCE price index, which will provide more clues about what the Fed might do in September.
USD/JPI Key Events Today
- Core price index US PCE m/m
USD/JPI Technical Outlook: Price is rising following the Morning Star candlestick pattern
On the technical side, the price of USD/JPI is jumping higher after finding support at the key level of 152.01. However, the bearish trend remains intact as the price is below the 30-SMA. At the same time, the RSI is in bearish territory.
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Still, there are signs that the bulls may be ready to take over. Notably, the price has formed a Morning Star candlestick pattern, indicating a possible bullish reversal. Price must break above the 30-SMA resistance and 156.02 to confirm this bullish signal.
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