**USD/JPY Analysis: Yen Weakens as Bank of Japan Maintains Dovish Stance**
*Original reporting by Mitrade News*
The Japanese yen has continued its downward trajectory against the US dollar, notably after the Bank of Japan’s (BOJ) latest announcement signaled that the central bank remains firmly committed to its dovish policy path. With the Federal Reserve poised for another rate hike, the divergence in monetary policies between the two countries is likely to persist, underpinning a strong USD/JPY uptrend.
This article presents a comprehensive analysis of the current forex landscape around the USD/JPY pair, including the latest market sentiment, technical outlook, key influences, and what the future may hold for traders and investors.
—
### Recent Price Action: USD/JPY Hits Multi-Decade Highs
– USD/JPY has surged past 160.00 levels, its highest since the late 1980s.
– The yen’s depreciation is mainly attributed to the widening yield gap between Japan and the US.
– Market intervention from Japanese authorities earlier in 2024 did result in short-lived recoveries, but the overall trend remains bearish for the yen.
—
### Summary of Key Events
#### Bank of Japan’s July Policy Meeting
The BOJ concluded its July policy meeting by keeping its short-term interest rate target unchanged at 0.1 percent and maintaining its 10-year government bond yield target around zero. Notable takeaways include:
– No significant policy tightening, in contrast to expectations by some market watchers.
– Signals that any substantive shift from ultra-loose policy is likely far off.
– The BOJ increased its inflation forecasts but emphasized uncertainty regarding wage growth and consumption recovery.
#### Federal Reserve Outlook
The US Federal Reserve has signaled continued vigilance against elevated inflation. Analysts widely expect:
– At least one more 25 basis point rate hike before year-end.
– Sustained policy divergence, further supporting US dollar strength.
—
### Fundamental Drivers Supporting USD/JPY Upside
Several fundamental factors explain the current USD/JPY trends:
#### 1. Monetary Policy Divergence
– The Fed’s restrictive stance, highlighted by higher interest rates, starkly contrasts with the BOJ’s ongoing yield curve control and negative rate environment.
– Capital flows favor US dollar assets, with investors lured by higher yields.
#### 2. Inflation Dynamics
– US core inflation, while cooling, remains above the Fed’s 2 percent target, backing further rate hikes.
– In Japan, inflation remains modest. While headline numbers have recently breached the 2 percent mark, underlying demand-pull pressures still appear weak to the BOJ.
#### 3. Safe-Haven Trade Dynamics Altered
– The yen classically serves as a safe-haven currency, but persistent negative yields have dulled this appeal in the current environment.
—
### Technical Analysis: USD/JPY
#### Short-Term View
– USD/JPY trades well above its major simple moving averages (SMA), confirming the strong bullish trend.
– Immediate resistance is noted at 161.50, beyond which the next psychological level is at 162.00.
– Near-term support is seen at 159.00, where authorities last intervened.
#### Oscillators and Momentum
– RSI on the daily chart is holding above 70, suggesting overbought conditions, but buyers remain unwilling to cede control.
– MACD maintains a bullish crossover, reinforcing upward momentum.
#### Medium to Long-Term View
– The uptrend is firmly established as long as the policy divergence remains.
– Any decisive break and sustained trade above 162.00 could open the doors for a run toward 165.00, barring substantial BOJ intervention.
—
### Intervention Risks
Japanese officials have demonstrated willingness to step into the FX market to slow excessive yen weakness.
– In April and May 2024, the Ministry of Finance (MOF) reportedly intervened at least twice to buy yen.
– Each time,
Read more on GBP/USD trading.