Japanese Yen Weekly Forecast: Will USD/JPY Break 145? Focus Turns to BoJ and Fed Decisions
Original article by Bob Mason, FXEmpire.com
The Japanese Yen (JPY) faces a pivotal week, as traders await key decisions from the Bank of Japan (BoJ) and the U.S. Federal Reserve. The USD/JPY exchange rate has recently hovered near the key psychological level of 145, prompting speculation about potential policy pivots and verbal intervention by Japanese officials. This week, with central bank policy meetings taking center stage, the currency markets could experience significant volatility.
With the Fed and BoJ releasing their monetary policy decisions just two days apart, traders will need to be watchful of any shifts in guidance, economic forecasts, and tone. These decisions may dramatically influence the future trajectory of the yen and the broader forex markets.
Overview: Yen’s Recent Performance
The Japanese yen has weakened notably against the U.S. dollar over the past months as divergent central bank policies continue to drive the exchange rate. While the Federal Reserve remains in a hawkish stance, looking to combat inflation with persistently high interest rates, the BoJ has retained an ultra-loose monetary policy, with negative interest rates and continued yield curve control.
This divergence has contributed to sustained downward pressure on the yen, making it one of the worst-performing major currencies in 2024. Investors are increasingly betting on an eventual policy shift from the BoJ, though the exact timing remains uncertain.
Key near-term factors that will shape USD/JPY movements include:
– The Bank of Japan’s upcoming interest rate and policy outlook
– The U.S. Federal Reserve’s latest policy decision and economic projections
– Potential verbal or direct intervention by Japan’s finance ministry
– Recent inflation and employment data from both economies
As the week unfolds, central bank decisions will likely determine whether USD/JPY surpasses the critical 145 threshold or retreats.
BoJ Monetary Policy Preview: Will They Act Now or Later?
Scheduled for December 19th, the Bank of Japan’s policy decision will be closely scrutinized. The central bank has maintained a very dovish stance for years, even as other global central banks tightened monetary policy to combat inflation. While the BoJ has tolerated inflation above its 2 percent target in recent months, it has refrained from raising interest rates.
Key elements the market is watching:
– Interest Rate Decision: Markets largely expect the BoJ to keep its short-term policy rate unchanged at -0.10 percent.
– Yield Curve Control (YCC): The central bank may tweak its YCC policy or offer stronger forward guidance on potential flexibility, as market pressure builds at the long end of the yield curve.
– Governor Kazuo Ueda’s Remarks: Traders will pay close attention to the post-meeting press conference, especially to any comments signaling a timeline for the end of negative rates.
BoJ policymakers have adopted a cautious tone in recent speeches. While inflation remains above target, wage growth has been limited, and concerns linger over the fragility of Japan’s economic recovery. Governor Ueda has noted that stronger wage growth and broad-based demand-driven inflation are needed before any exit from ultra-accommodative policy can be considered.
Markets do not anticipate a rate hike in December, but the meeting could set the stage for a potential policy shift in the first quarter of 2025.
Fed Rate Decision: To Hike or Hold?
On December 13th, the U.S. Federal Reserve will announce its policy decision. The Fed is widely expected to hold its benchmark Fed Funds rate steady, likely keeping the target range at 5.25 to 5.50 percent.
Investors will focus on these areas:
– The updated Summary of Economic Projections (SEP) and dot plot
– Any revisions in outlook on inflation, employment, and GDP growth
– Fed Chair Jerome Powell’s tone during the post-meeting press
Explore this further here: USD/JPY trading.