- Yen is headed for a 5% monthly gain.
- The Bank of Japan raised rates by 25 basis points.
- Investors are cautious ahead of the Fed’s policy meeting.
The USD/JPI forecast shows increased bearishness as the yen rallied after the Bank of Japan raised interest rates. At the same time, Japan’s central bank announced plans to scale back its massive economic stimulus. Meanwhile, investors braced for the Fed’s policy meeting.
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Yen is headed for a 5% monthly gain. The recent recovery came after the BoJ raised rates on Wednesday, tightening its monetary policy. Japanese rates are now at 0.25%, meaning the policy gap between the BoJ and the Fed is narrowing.
The rise of the yen in July was caused by several factors. First, the Bank of Japan intervened in the markets by buying yen and selling dollars, resulting in a brief increase in demand for the yen.
Second, there was more speculation about a possible rate hike at the end of the month. Consequently, investors started pricing in higher rates even before the policy meeting. As it turned out, the BoJ did not disappoint.
Third, markets were hoping the BoJ would announce plans to taper bond purchases. However, the actual numbers were lower than expected. The central bank expects to halve bond purchases by the first quarter of 2026.
Elsewhere, there was caution ahead of the Fed’s policy meeting. The US central bank is likely to keep interest rates unchanged. However, traders are hopeful that policymakers will signal the first rate cut in September.
USD/JPI Key Events Today
- BOJ press conference
- Change in non-agricultural employment in the US ADP
- US employment cost index c/c
- USA pending house sales m/m
- FOMC Policy Meeting
USD/JPI Technical Forecast: Bears take control after bear-swallowing candle
On the technical side, the price of USD/JPI has suddenly moved from bullish to bearish. Initially, the bulls took control by breaking above the 30-SMA. However, they failed to break the key level of 154.80. Here the price made a bearish candle, indicating a reversal.
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The price has returned below the 30-SMA and the RSI has entered the oversold region. After the reversal pattern, the bears took over and broke below the 152.01 support level. As a result, the price made a lower low. If this bearish trend continues, the price will soon retrace the 150.02 level.
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