USD/JPY Breaks Above 147 Amid Fed-BOJ Policy Divide: Yen Slumps to Two-Month Lows

Title: USD/JPY Forecast: Yen Slides to 147 as Policy Divergence Widens Between Fed and BOJ
Original Author: Brandon Fong, TradingNews.com
Source: https://www.tradingnews.com/news/usd-jpy-price-forecast-yen-weakens-to-147-as-fed-and-boj-divergence-widens

The Japanese yen slipped to its lowest level against the US dollar in over two months as the USD/JPY pair climbed above 147.00. This movement reflects widening monetary policy divergence between the US Federal Reserve and the Bank of Japan (BOJ), which continues to pressure the yen and buoy the dollar. The policy stances of both central banks remain sharply contrasted, reinforcing bearish sentiment on the yen and increasing prospects for sustained strength in the US dollar.

Market participants closely monitor the widening interest rate differentials between the US and Japan. The Federal Reserve’s ongoing commitment to a tightening monetary policy contrasts starkly with the BOJ’s continued adherence to ultra-loose measures. This divergence serves as the principal driver for the dollar-yen currency pair’s ascent.

Key Factors Supporting USD/JPY Upside Momentum

Several factors are contributing to the strength of the USD/JPY pair:

• Federal Reserve Hawkishness: Fed Chair Jerome Powell has consistently expressed cautious optimism about the US economy, highlighting stable growth and a labor market that remains strong. This, in turn, has supported the case for the Fed to leave the door open for another rate hike in 2024 if inflation proves stickier than expected.

• Japanese Monetary Policy Dovishness: Despite signs of rising inflation and wage growth, the BOJ continues with its ultra-accommodative stance. Governor Kazuo Ueda has reiterated that conditions are not yet right for tightening policy or exiting negative interest rates, citing the lack of a sustainable inflation trend.

• Yield Differential: The return on US 10-year government bonds has climbed over 4.1 percent, attracting foreign capital. In contrast, Japan’s 10-year bond yields remain suppressed under the BOJ’s yield curve control policy. This growing yield spread is driving capital flows into the dollar and away from the yen.

USD/JPY Technical Analysis

The technical structure of the USD/JPY currency pair supports a bullish continuation. After a period of consolidation between 144.50 and 147.00, the pair has broken through key resistance at 147.00 with strong bullish momentum. This breakout signals a potential continuation into the 148.00 zone, with further targets lying between 148.50 and 149.00 if bullish conditions persist.

• Resistance Points: Above 147.00, traders will be watching 148.00 and 149.00 for potential profit-taking. A close above these levels could reignite buying pressure, potentially testing 150.00, a psychological and key resistance level.

• Support Levels: On the downside, the 146.00 zone offers immediate support, followed by the 50-day moving average around 145.20. If price action breaks below these areas, it could indicate a potential reversal or deeper correction.

• RSI Indicator: The Relative Strength Index (RSI) is edging toward overbought territory but still offers room for further upside. Sustained strength above 70 may prompt caution or suggest that the rally is losing steam.

• Volume Analysis: Volume has increased during recent upswings, confirming buyer participation. Sustained buy-side momentum is reinforcing the upward trajectory.

BOJ Cautions Yet Resists Policy Shift

Market speculators have been attempting to price in a potential policy pivot by the Bank of Japan, especially as inflation indicators hint at emerging demand-side price pressures. However, BOJ Governor Kazuo Ueda has downplayed an imminent exit from negative interest rates or an end to the yield curve control framework. According to Ueda, though prices are indeed rising, they are doing so largely due to cost-push factors rather than sustainable demand-led inflation that would

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