- May saw a sharp improvement in US consumer confidence from 97.5 to 102.0.
- US yields rose, sending the yen down.
- The BoJ’s Seiji Adachi said the central bank could raise rates due to the weak yen.
The USD/JPI forecast is bullish despite fluctuations amid rising US yields and hawkish comments from the Bank of Japan. The pair initially hit a 4-week high as the dollar and US yields rose. However, it pulled back after the BoJ policymaker signaled the chance of a rate hike in the near future.
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Data on Tuesday revealed a sharp improvement in US consumer confidence from 97.5 to 102.0 in May. This sent the dollar higher as expectations of a Fed rate cut fell. At the same time, yields rose, causing the yen to fall. A strong economy means the Fed will keep interest rates high for longer. This in turn will widen the interest rate gap between Japan and the US.
However, the yen rallied slightly after BoJ board member Seiji Adachi said the central bank may raise rates if a weak yen leads to higher inflation and inflationary expectations. Notably, the Japanese currency has lost over 10% of its value this year despite the BoJ’s first rate hike in March. This decline is a result of interest rate differences between Japan and the US. Even the Bank of Japan’s interventions only temporarily affected the yen. Analysts expect another BoJ hike in July.
Meanwhile, a survey showed worse consumer sentiment in Japan in May. The Bank of Japan’s plans to raise interest rates continue to face challenges as data shows weak economic demand.
USD/JPI Key Events Today
Neither the US nor Japan will announce high-impact events today. Therefore, investors will continue to absorb the latest data.
USD/JPI Technical Forecast: Bulls remain weak above 156.50
On the technical side, the USD/JPI price is trading between the 156.50 support level and the 158.01 resistance level. Furthermore, it maintained its position above the 30-SMA, supporting the bullish bias.
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However, momentum remained weak, with price remaining close to the SMA and RSI failing to reach overbought levels. If this shallow trend continues, the price will reach resistance at 158.01. On the other hand, if the bulls give up control, it will break below the SMA and support level of 156.50.
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