- Markets expect the Bank of Japan to keep rates on hold tomorrow.
- The yen will remain weak if Japan maintains its outlook for gradual rate hikes.
- As the USD/JPI pair continues to rise, the risk of intervention increases.
The USD/JPY outlook remains bullish as the yen weakens in anticipation of the Bank of Japan’s policy decision. However, investors are proceeding cautiously as intervention risk becomes high after the recent bounce above the $155 level.
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On Thursday, the Bank of Japan began its policy meeting where it will decide on interest rates. When the meeting ends tomorrow, markets expect the central bank to keep rates on hold. However, policymakers could give a hawkish message on the outlook for interest rates.
In particular, BoJ Governor Kazuo Ueda has taken a more hawkish tone in recent weeks due to the yen’s sharp decline. He has repeatedly said the central bank could raise rates to support the weak currency. A weak yen triggers an inflationary trend as it raises import prices. However, if the Bank of Japan keeps rates on hold, the fundamentals supporting the yen’s decline will remain. The yen weakened significantly due to the interest rate gap between the US and Japan. Therefore, as long as Japan maintains its outlook for gradual interest rate hikes, the yen will remain weak.
Meanwhile, as Japan’s currency plummets, officials in the country have stepped up warnings of looming intervention. Although such remarks kept it in a narrow range below $155, the effect eventually faded. Markets saw this level as a line in the sand. However, they have now raised it to $160. As the USD/JPI pair continues to rise, the risk of intervention increases.
USD/JPI Key Events Today
- Improve US GDP
- US unemployment claims
- Pending home sale in USA
USD/JPI Technical Outlook: New swing high signals rising bullish momentum
On the charts, the USD/JPI price broke away from the 30-SMA and made a new high, signaling an increase in bullish momentum. This can also be seen in the RSI, which is deep in overbought territory. Price is trading in a bullish channel heading towards the resistance line. However, the bulls must break above the key psychological level of 156.00 to reach channel resistance.
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After such a strong bullish rally, the price could stop at 156.00, where the bears could show up for a pullback. Therefore, the USD/JPI pair could retest the 30-SMA before continuing higher or reversing the trend.
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