- BoJ Deputy Governor Shinichi Uchida said the central bank should pause due to recent volatility in global markets.
- The US dollar stabilized as expectations of a Fed rate cut eased slightly.
- Investors are pricing in a 70% chance of a Fed rate cut in September.
The USD/JPI forecast points to the north as the pair reverses its steep decline. The yen fell after a Bank of Japan official played down hopes of a near-term rate hike. Meanwhile, the dollar steadied as expectations of a Fed rate cut eased slightly.
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On Wednesday, BoJ Deputy Governor Shinichi Uchida said the central bank should pause due to recent volatility in global markets. These remarks reduced the likelihood of a near-term rate hike in Japan.
The Bank of Japan raised interest rates for the second time last week, boosting the yen and narrowing the interest rate gap between Japan and the US. As a result, investors gave up on the forward momentum amid wide interest rate differentials.
Initially, investors borrowed yen at low rates to buy dollar assets for higher yields. However, the carry trade may lose popularity now that the BoJ is on the rise and the Fed is about to cut rates. Consequently, the yen could recover from its recent 7-month high. However, that depends on how quickly the BoJ tightens its monetary policy. A slow pace could keep pressure on the Japanese currency.
Meanwhile, the US dollar stabilized as expectations of a Fed rate cut eased slightly. Following last week’s jobs report, markets have priced in an 85% chance of a 50 basis point rate cut in September. However, upbeat data on U.S. service activity eased recession fears and reduced the chances of this rate cut. There is currently less than a 70% chance of a rate cut in September.
USD/JPI Key Events Today
Investors may want to pause and reflect on recent volatility as there are no high-impact releases from the US or Japan.
USD/JPI Technical Forecast: Bulls break above 30-SMA
On the technical side, the USD/JPI price has broken above the 30-SMA with a solid bullish candle. At the same time, the RSI is now trading above 50, in bullish territory. These changes indicate a change in sentiment towards bullishness. The previous bearish trend stalled near the key level of 142.56, where the bulls re-emerged.
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If the price sustains a move above the 30-SMA, it could retest the 150.03 resistance level. However, the price must start making higher highs and lows to confirm the new trend.
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