- The BoJ will continue to raise interest rates if inflation comes in as expected.
- Economists predict at least one rate hike before the end of the year.
- Investors are gearing up for the US CPI report.
The USD/JPI forecast shows renewed bearish momentum after the yen rallied over 1% against the dollar following hawkish remarks from the Bank of Japan. At the same time, the dollar was fragile a day after the US presidential debate showed that Kamala Harris was in a stronger position.
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On Wednesday, Bank of Japan board member Junko Nakagawa said the central bank would continue to raise interest rates if inflation comes in as expected. She also said last month’s volatility had not changed the BoJ’s target for higher interest rates. Higher borrowing costs in Japan will narrow the US-Japan rate gap, boosting the yen.
Still, investors don’t expect the central bank to hike this month. Meanwhile, economists predict at least one such move by the end of the year.
The yen also gained as the US presidential debate weakened the dollar. The debate added to bets on Kamala winning and Trump being removed, reducing the likelihood of higher tariffs and an increase in government spending. The idea of a Trump victory has always boosted the dollar because it could raise interest rates.
Meanwhile, investors are bracing for the US CPI report, which could provide more guidance on the size of the Fed’s next rate cut. Economists expect inflation to reach the 2% target, while the headline figure will reach 2.9%. A softer-than-expected print could lead to a dovish Fed. On the other hand, stable figures may indicate a gradual cycle of rate cuts.
USD/JPI Key Events Today
- USA core CPI m/m
- US CPI m/m
- US CPI y/y
USD/JPI Technical Forecast: RSI Bullish Divergence
On the technical side, USD/JPY made a new low after breaking below the 142.00 support level. The price is trading well below the 30-SMA, indicating a bearish bias. At the same time, the RSI is supporting a bearish momentum below 50.
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However, it made a bullish divergence. While the price was lower, the RSI made a higher one. This shows that the bearish momentum is fading. In that case, the price could soon return to the 30-SMA to trigger a bearish trend.
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