- The interest rate gap between Japan and the US is likely to continue for some time.
- The Federal Reserve is not yet confident enough to start cutting interest rates.
- The Bank of Japan is cautious about raising interest rates.
USD/JPI price analysis is bullish as yen slips against dollar despite stern warnings from Japanese authorities. Although the recent dollar selling intervention has boosted the yen, market fundamentals continue to support the downside.
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Interest rate differentials between Japan and the US remain the most significant factor contributing to the yen’s weakness. Furthermore, the outlook for interest rates in Japan and the US indicates that the interest rate gap is likely to continue for some time.
The Federal Reserve is not yet confident enough to start cutting interest rates. Meanwhile, the Bank of Japan is cautious about raising interest rates. Currently, the interest rate gap between Japan and the US is 370 basis points. Consequently, the dollar will remain more attractive to investors than the yen.
Meanwhile, on Tuesday, Japanese Finance Minister Masato Kanda said the government would continue to apply the same tough approach to the yen’s sharp decline. In other words, Japan could intervene again to support its currency.
Elsewhere, the US jobs report failed to boost the yen as the dollar fell. Notably, employment fell more than expected in April, while the unemployment rate jumped. This was a positive sign for the Fed. However, it was not enough for policymakers to conclude that inflation would reach the 2% target.
USD/JPI Key Events Today
Neither the US nor Japan will report any high-impact news today. As a result, the couple could make small moves.
USD/JPI Technical Price Analysis: Channel Resistance
On the technical side, the USD/JPI price broke above the key resistance level of 154.01 to continue the recent recovery. At the same time, the RSI is trading just above 50, indicating stronger bullish momentum. However, the bearish bias remains as the price is below the 30-SMA. Moreover, it is still trading within its bearish channel.
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Currently, the price is approaching a solid barrier consisting of the 30-SMA and channel resistance. Bears will emerge and target the 151.01 support level if the barrier holds firm. On the other hand, if it declines, the bias will change to bullish, with the next target at 158.00.
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