The USD/JPY price rebounded on Monday as investors focused on the upcoming Bank of Japan (BoJ) interest rates decision. The pair rose to the important resistance at 143, which was much higher than this month’s low of 140.95. It has retreated by more than 5.8% from its highest point this year.
BoJ decision previewThe biggest forex news of this week will be Tuesday’s interest rates decision by the Bank of Japan (BoJ). In it, the bank is expected to deliver its outlook for the Japanese economy and then predict what to expect in 2024.
Economists polled by Reuters expect the Fed will leave interest rates unchanged at minus 0.1%, where they have been since 2016. The key JPY news will be whether the bank will signal that it will exit negative rates in 2024.
If this happens, the BoJ will significantly differ from the Federal Reserve. In its decision last week, the Fed decided to leave interest rates unchanged between 5.25% and 5.50%. The dot plot also pointed to three rate cuts in the following year.
Two Fed officials have pushed back against rate cuts. In a statement on Friday, John Williams of the New York Fed warned that it was still too early to predict when the rate cut will come. He believes that inflation remains stubbornly high.
In a separate statement, Austan Goolsbee of Chicago Fed also noted that it was too early to take a victory lap on inflation. Besides, core inflation is double the Fed’s target of 2.0%.
Therefore, the BoJ decision itself will not have an immediate move on the USD/JPY pair. Instead, the key catalyst will be the bank’s statement of future interest rates. In a note, analysts at ING mapped the following scenario:
“Expect any hawkish surprise in communication tomorrow to push USD/JPY close to the 140 support, whereas an unchanged message can bring the pair back to 145, where we could see selling interest if the dollar momentum proves soft.”
USD/JPY technical analysis
The daily chart shows that the USD to Japanese yen has been in a strong downward trend in the past few months. The 50-day and 25-day Exponential Moving Averages (EMA) have already formed a bearish crossover, which is a bearish sign.
Also, the pair has moved below the Ichimoku cloud indicator while the Stochastic Oscillator and the Relative Strength Index (RSI) have continued falling. Therefore, I concur with ING’s view that a hawkish tone will drag the pair down to the support at $140. A dovish tone will lead to more upside towards 145 and above.
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