- USD/JPI outlook weakens as probability of December BoJ rate hike rises to 54%.
- Fed policy has changed significantly since Trump won.
- A BoJ rate hike could provide temporary support to the yen.
The USD/JPI outlook shows a stronger yen as Ueda’s dovish remarks increase the likelihood of a BoJ rate cut in December. Meanwhile, the dollar held steady as markets gradually priced in the Fed’s rate cut.
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Bank of Japan Governor Kazuo Ueda emphasized in his speech on Monday that the Japanese economy is on the right track. Therefore, the central bank will have to raise rates in the near future. His remarks raised the probability of a rate hike in December to 54%, boosting the yen. However, Ueda failed to give clear guidance on the possible timing of the next rate hike.
The outlook for the Japanese currency improved slightly as the Bank of Japan began raising interest rates and the Fed began tapering. However, the Fed’s policy outlook has changed significantly since Trump won the election. The US central bank may not cut rates as much as previously expected, as Trump’s policies could increase inflation.
Consequently, the rate differential between Japan and the US is likely to remain wide, which will weigh on the yen. At the same time, Fed policymakers sounded more hawkish, with Powell saying there was no rush to lower borrowing costs. On the other hand, top officials in Japan are becoming worried about the weak yen. This is why they are putting pressure on the Bank of Japan to raise rates.
A BoJ rate hike could provide temporary support to the yen. However, as long as demand and inflation rise with the Trump administration, the dollar will remain strong, putting pressure on the yen.
USD/JPI Key Events Today
Market participants are not expecting any key reports from Japan or the US. Therefore, they could continue to trade Trump.
USD/JPI Technical Outlook: Bears Break Channel
On the technical side, the USD/JPI price has broken out of its bullish channel, with the bears leading the way. The decline started at the resistance level of 156.51. Price action has changed to show strong bearish candles, which have broken below the 30-SMA.
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Initially, the price paused at the support of the channel. However, the bears made another attempt at par and broke below. The price now faces the support level of 154.00. A break below will allow USD/JPI to reach the 151.74 level.
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