**USD/JPY Forecast: Bullish Outlook Continues Amid BoJ Policy Speculation and U.S. Economic Indicators**
*Original article by Kathy Lien, Senior Currency Strategist at BK Asset Management (Published on Forex Factory)*
The USD/JPY currency pair continues to exhibit a strong bullish trend, backed by diverging monetary policy expectations between the U.S. Federal Reserve and the Bank of Japan (BoJ). As global markets digest mixed economic indicators, USD/JPY strength is being driven by hawkish U.S. interest rate expectations combined with Japan’s struggle to shift away from decades of ultra-loose monetary policies.
This forecast elaborates on the key fundamental and technical factors influencing the yen-dollar pair, outlines possible scenarios for traders, and explores what market participants can expect from both economic data and central bank policies in the coming weeks.
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**Key Factors Driving USD/JPY Strength**
1. **Divergent Monetary Policy Trajectories**
– The Federal Reserve is maintaining a relatively hawkish stance, with Chair Jerome Powell and other Fed officials signaling gradual interest rate cuts depending on inflation data.
– By contrast, the BoJ, under Governor Kazuo Ueda, remains cautious even after exiting its negative interest rate policy. Japan aims to normalize policy slowly to avoid destabilizing its fragile economic recovery.
2. **Interest Rate Differentials**
– U.S. 10-year Treasury yields remain elevated, attracting capital inflows and boosting the U.S. dollar.
– Japanese benchmark rates are still close to zero. The large interest rate differential favors long USD/JPY positions, as carry traders take advantage of high-yielding dollar assets.
3. **Inflation Trends in the U.S. and Japan**
– In the U.S., while inflation has cooled, core services inflation remains sticky. This supports expectations for the Fed to delay rate cuts.
– In Japan, inflation has increased slowly, with recent wage growth fueling speculation that the BoJ might raise rates modestly. However, the timeline remains uncertain, limiting immediate yen strength.
4. **Wage Growth and Labor Tightness in Japan**
– The Japanese government and BoJ have cited wage growth as a key condition for sustained inflation.
– While large firms delivered solid pay hikes, small and medium-sized businesses have lagged behind, weakening the case for BoJ tightening.
5. **Global Risk Appetite and Safe Haven Demand**
– Despite ongoing geopolitical risks and volatility in emerging markets, the combination of resilient U.S. data and equity market strength has reduced the yen’s appeal as a safe haven.
– Should global risk sentiment sour, temporary upside could be seen in the yen. However, current macroeconomic trends still favor USD strength.
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**Technicals Suggest Further Upside Potential**
Traders monitoring technical charts of USD/JPY have observed several bullish indicators that reinforce the fundamental case for yen weakness:
– The pair recently broke past the 155.00 resistance level, which had previously capped gains.
– Daily moving averages (50-day and 100-day) point upward, suggesting momentum remains intact.
– RSI levels remain elevated, approaching overbought territory, indicating the potential for short-term consolidation but not necessarily signaling a reversal.
– The next major resistance lies near the 157.00 level, with support near 154.50 and 153.00.
These charts imply that, unless there’s a significant shift in expectations around BoJ or Fed action, upward momentum could persist in the near term.
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**Market Reactions to BoJ Policy Statements**
In recent comments, Bank of Japan officials have spoken cautiously about future rate hikes. While some BoJ members have openly discussed evaluating the possibility of additional tightening, there remains no consistent message about the timing or scale.
– Governor Ueda emphasized the importance of sustainable inflation around the 2% goal. He reiterated that any further tightening would be gradual and data-dependent.
– This conservative approach and lack of urgency have contributed to yen depreciation.
Read more on EUR/USD trading.