**This article is based on “USD/JPY Weekly Forecast: Dollar Uptrend Faces Major Test at BoJ and Fed Meetings” By Fawad Razaqzada, Mitrade**
—
# USD/JPY Weekly Forecast: Dollar Uptrend Faces Major Test at BoJ and Fed Meetings
*By Fawad Razaqzada, originally published by Mitrade*
The USD/JPY currency pair enters the final days of July pulsing with tension, as both the Bank of Japan (BoJ) and US Federal Reserve (Fed) are set to announce their monetary policy decisions. The outcome of these meetings could significantly influence the pair’s decade-high trajectory and broader trends across the forex market.
This week is crucial not only for currency traders, but for global markets, as the BoJ could finally move away from its ultra-easy policy stance, while the Fed faces pressures to recalibrate after months of dollar strength. Let’s break down what’s at stake, key scenarios, and technical signals shaping the outlook for USD/JPY.
—
## BoJ and Fed Meetings: The Stakes
The convergence of these policy announcements raises the likelihood of heightened volatility for Japanese yen crosses, especially USD/JPY.
### Bank of Japan: Tapering the Yield Curve Control?
– **Background**: For years, the BoJ has employed a range of easing tactics, notably its yield curve control (YCC) policy. This kept the 10-year Japanese Government Bond (JGB) yield pinned near zero, weighing on the yen.
– **Recent Moves**: In recent months, arriving after surprise adjustments to the YCC band in July 2023, the BoJ has laid groundwork for a possible step away from negative rates or aggressive bond-buying.
– **Market Expectations**: Some analysts expect the BoJ to either:
– Abandon or further widen its YCC, increasing long-term Japanese rates
– Signal an end to negative interest rates in 2024
– Stick to current guidance, citing subdued wage growth and inflation
– **Potential Impact**:
– A *hawkish* BoJ (tightening policy) usually strengthens the yen, pressuring USD/JPY lower
– A *dovish* or status quo BoJ prompts further yen selling, supporting the pair upwards
### The US Federal Reserve: To Pause or Continue Hikes?
– **Backdrop**: The Fed raised its benchmark rate in July, slowing to a more cautious pace as inflation data began to soften. Earlier, expectations of further hikes fueled a relentless US dollar rally.
– **Critical Questions**:
– Has US inflation cooled sufficiently for the Fed to pause?
– Will the Fed hint at another hike, or an earlier start to cuts in 2024?
– **FOMC Guidance**: Any change or nuance in the Fed’s statement and Chair Powell’s press conference will be closely scrutinized for signals on future moves.
– **Implications for USD/JPY**:
– A *hawkish* Fed (open to further hikes) could reignite the dollar’s uptrend, boosting USD/JPY
– A *dovish* tilt (pause or rate cut hints) could cap or reverse gains
– Sharp divergences between BoJ and Fed stances heighten volatility prospects
—
## Macro Backdrop: What’s Driving Dollar-Yen Moves?
### Interest Rate Differentials
USD/JPY’s upward trend, which pushed the pair above 141 earlier in July, has been driven largely by the yawning gap between US and Japanese interest rates. As US rates soared after 2022’s inflation surge, the yen depreciated sharply.
– **Carry Trades**: Low Japanese yields have fueled funding trades, in which investors borrow yen to invest in higher-yielding US assets
– **Yield Spread Sensitivity**: Wider US-Japan yield gaps push USD/JPY up; any narrowing (via BoJ tightening
Read more on GBP/USD trading.