Title: USD/JPY Forecast Following Fed and BOJ Interest Rate Decisions
Original Article by Imogen Lillywhite | Source: Kalkine Media
The USD/JPY currency pair has recently experienced notable movements triggered by key interest rate decisions from both the Federal Reserve (Fed) and the Bank of Japan (BOJ). These monetary policy updates have influenced investor sentiment and are shaping the forecast for this major forex pair, which has implications for traders and financial markets globally.
Overview of Recent Central Bank Decisions
The actions of the Federal Reserve and the Bank of Japan in June 2024 have provided clarity on their views of current economic conditions and future policy direction. Markets have responded to the divergence between the tightening stance of the Fed and the ongoing accommodative policies of the BOJ.
Federal Reserve Policy Decision:
– On June 12, 2024, the US Federal Reserve concluded its two-day Federal Open Market Committee (FOMC) meeting.
– As widely anticipated, the Fed held the federal funds rate steady in the 5.25% to 5.50% range.
– The central bank expressed cautious optimism, highlighting persistent inflation concerns.
– The Fed’s updated “dot plot” showed that policymakers now anticipate only one rate cut later in 2024, a decline from the previously forecast three cuts.
– Chairman Jerome Powell reiterated the Fed’s data-dependent approach and affirmed the need to see further evidence that inflation is sustainably returning to the 2% target.
Bank of Japan Policy Update:
– On June 14, 2024, the Bank of Japan also held its monetary policy meeting.
– While the BOJ kept interest rates unchanged, maintaining its short-term policy rate in the positive territory after the hike in March, Governor Kazuo Ueda signaled readiness for gradual policy normalization.
– The central bank stated it will begin scaling back its massive government bond purchase program, considered a step toward reducing prolonged stimulus.
– However, the BOJ did not provide specific details on how and when it would reduce bond purchases, leading to a mixed market response.
– Governor Ueda emphasized that future policy changes will be highly contingent on wage growth and inflation sustainability.
Impact on USD/JPY Exchange Rate
The juxtaposition of these central bank decisions has had a noticeable impact on the USD/JPY exchange rate. The dollar gained strength as the Fed maintained its hawkish stance, while the yen weakened due to the BOJ’s cautious and less assertive approach to tightening.
Key USD/JPY Moves:
– Following the Fed announcement, the USD/JPY climbed as investors priced in fewer rate cuts for the remainder of the year.
– After the BOJ decision, the yen briefly strengthened due to expectations of bond purchase reductions but quickly weakened again with the lack of clarity on implementation.
– Overall, the USD/JPY pair hovered near multi-decade highs, testing resistance levels around 158.00 and approaching 160.00 during intra-day sessions.
Technical Analysis and Chart Outlook
The technical structure of the USD/JPY pair highlights bullish momentum, reinforced by robust US economic data and continued monetary policy divergence.
Support and Resistance Levels:
– Immediate resistance lies at 159.50, a previous high tested in May 2024.
– The psychological level of 160.00 acts as a major resistance barrier; a break above could trigger intervention speculation from the Japanese government.
– Key support lies around 157.00 and 155.50, levels that may be tested if risk sentiment shifts or US economic data disappoints.
Moving Averages & Indicators:
– The USD/JPY continues to trade above its 50-day and 200-day moving averages, suggesting an overall uptrend.
– RSI (Relative Strength Index) readings remain near the overbought territory, which may signal a short-term pullback or consolidation.
– MACD (Moving Average Convergence Divergence) also shows continued bullish momentum with the signal line above zero.
Japanese Government’s Response and Potential FX Intervention
With the yen weakening to historically
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